64\ FEDERAL TlL1.DE COMl\ISSIOX DECISIONS

FiJ\r1iJlg' UT F.T.

Other Acquisitions). Respondent made three other ac.rlllisitions in the State of "\Vyom-

ing. Only one of these. invob,vcd a corporation. Complaint counsel COllcede that. ihe record fai1s to est.ablish t.hat any of the three campanic"YFflS engaged in commerCB. 1'118 only corporation in the group was,Vorland Cl'eamer r Company, whieh respondent cqnjrcd in :.iay1939 for a. consi(lel'r.tion of 8Ti (\()O. "'IT udanc111t cl sustained n loss onits ope,ratimB ill eeleh of the 1."1'0 years prior to its acquisition (CX85S- , H). The other two ('ompflnie aeqllirec1 were: :JIerec1ith Dairy,1yhich respondent acqllil'Pcl in Deeclnber 1831 fOl' a consideration of

:300 (eX GD-A)j and YcllOlystGne Dairy? "irhjch l'cspondent ac-quired in i\fay 1D;)cl for SG;")ono (CX 110-A)Y

1. /1 08e Luwh liaii';c8 of .i1. an8a8 lnc.The Ac(;nisition

1. Rose L wn Dairy opcrc- tec1 f1S bot.h a corporation and a pal'tner-S111p. The principallocn.ion of the b1lsiness was in M:llskogee , Olda-llOlla rmc1 was operated hy n. partnership. Thrre werc t\yo l o.se Lawndistribution brnllches, Gnt; IYfU-; in T\IcAJester ) Oklahoma

, '

whidl thepfll't-nrl'sh1r) 0: l2Jatc(l. T1H ' oOWl' \Y F) in Fort Srnith , A_dmllSflS

, -

whichs oprJ'f1ted as an -,\.1'1;:i1n ms cOl'pOratioll 'I\'h080 stock \'I' 2S wholly

oW11('(l by t1)e partners11ip. The partnership had originally manui'ac-tured its own ice cream and processed its o\Yn milk , ,yhich ,yere distributed both from 1\Inskogce and Lbc two branch locntjons. I-Iuwevcl'

in 193 it cenf::ed llnllufactnrillg iCG c.ream bec,ause of ilnaneial (1iff-cnHics r'tlc1 Legfm purchnsing its ice cream 1'egnirements :from S\yiL& Co. In IDi51 , the eontinuntion of its financial diffculties caused thecompany to cense processing milk, and it 1 )((,:\i1e t1 (list.l'ibllt-01' ofilnicl milk pnrCl)flE;ecl from rEspondent's plant at Tulsa, OkbJlOma. InJanllnl'Y lOtio ; wlwn Rose Iifnnl "YHE: tllflbJc to repfty respondcnt forrnilk 'Hl (Lail'Y products pllrrha ;e;l -from it , respondent took oyC'rt.l1e 1.\1('.. lestcl' nnc1 Fort 3rnith branches , in partial repayment of thedebt. Hespoll(lpnt c1ic111ot, f'C(lui:!'c the principal bllsil1ess of the pal't-ne.rsl11p at J\Jllskogec.. After ()pr:l'a jng the lJrnnches for a ye 1'0-81)onc1cnt olTel'e(l to re eJj them too nose Ii , 1)11( tJIG btter declined111e aili'r (CX 21: ex 111).

:: H03e L:nYi1 Dairies 0-( Al'kan ) Inc. , hn(lllet sales in t.he sevel1month period :fom April) , 105'1 to OctnlJer 31 , 1964 , of $227 477 , onWllicll it sllst:llnptl a loss of S:1G 02-G (CX 21-G). T1w reeord does notdisclose any breal c1G\nl of t.he operations of the partnership, as bc-

1;: " ;1. ,"iGT 81ljJlO, for :l l1i l1ssi",n vf Yr!lo\Y to:le n 1iI" rl,et j)(\siti,,)n JJI "portion of thp. ",'

('.'

..r\E(l by thE' Ubh Div;s!O!l of Cl'('n1lerje of Am(,l'iea,

BEAT-nICE FOODS CO:MP ANY 645

"'')

I.. Findings

t,vcen the J\fnskogee ,1DJ, )fcAleste.l operations. In the 10 mont.hs HIJ

to October 31 , H),- the Imrine.rshlp hacl net sales of Sl)5f) , onwhich it ::n )taincc1 ,1 l(J s of lJ)OO (eX 117-1). The. record eontrtinsnu datft flS to the gnJlollage 301(1 by the Fort Smith branch operatedby the COl'nol'nfi nll Th:'. gal101Wi.:c a1cs of the l\TcA1esi-el' branch

1)(1'ato(1 b the pnl'tne,' ::11ip ,VPi'e npproximately 7;)r) gallons of mi1kper cla.y (C1Z 117--E).1\Ta1'kct Conditions

3. The bj'flllell oprl' :ttecl b:\! the corporation at Fort Smith dis-tribnted :Iuid milk tUHl -reJnjpd pl'0c111CtS in the city of Fort Smithflllc1 adjacent. territory (C'X 21-D), These prodncts were receivedfrOll1 responc1ellt s p18nt ill TnJsn , Oklahoma. Respondent concedesin its f(ls,ver tlwt the Hose I.-Hwn r:01'pol'ation ,vas engaged in com-merce. The branch at :.1('A1('stl:1' distrilHllccl fluid miJk and relatedproducts in the c011lties of Pittsburg, Latimer an(l pa.rt of Push-mataha in the State or Oklahonm (CX 117-E). Respondent did notc1istrilmte any milk procl11cts in the areas in ,\'-hich its clistrilmtor sold.Thcre ,yere sevcn other dairy cOlnpnni(,s c1istriLmting dairy productsin the area scl'ycc1 by t11e Fort Smith b;' :ll1Ch (CX 21-D), and :fonrin the arcft sc'.rn:d by the IcAle3tel' lj allch (CX 117-E).

4. Complaillt cOlm el hllVP proposed no speciHc al'ca , as being thel'elenmt gcogr lphic nwrkei; with respect to either the I'-'ort Smithbranc.h or the :,IcAlest.cl' lJrnnch. In the. absence of more definitiveevidence than apl)cal'S in the record , no Gnding can 1.m made as to therclEwant geognlpbic HHlrket arcas. The record contains no marketshr re data with respect to tile fn'ca in -which the Fort Smith branchoperated by the coq:orat:ion , saki. There is evidence that the marketshare of the l ose Lawn operation conc1llctecl by the partnership inIcAJester ,v s in the. crder of rilagnitude of 11 to 130/0 (C)'; '-Hi1).

2. DahZ-C,' :lla , Dc!.

Tl18 J-\cqllisiLion

1. . :o: heretofor8 mentioncd (p. 5GD , 8'1ljha), in Decelnbc:l' ID3-i. I'Lsponc1ent acquired Dahl-Cro-JIa. , Ltd. , a I-Iawaiian corporation. ThefLcq!lisition TIflS f'cCtllfll1y made by Dairyme. s Associfltion , Ltd. (thelUlme under Iyhieh rcsponc1enCs subsic1ia::' y, Cl:eameries of Americaoperated in I-IQ,v:lii). UIHlel' an lgr('ement entered into Decembe.r 27

195/1: , Dairymen s acquil' c1 the lmsiness and assets of DahJ- Cro- l\'Ia

including its trade mune "Bluo BonneL The transfer took pJaceFebruary 1 , IDD,), and the consideration paid WR.S approximately

3100 O()O (CX: 24 A-E). Da.hl-Cro- lvra 'ivas engaged in the l1nl1nfnc-tw:e and srdc of ice cream and other :frozen desserts. In the fiscRI

646 FEDERAL 'TRADE COMMISSION DECISIONS

Findings 67 F.

year ending June 30 , 1954 , Dahl- Cro-:Ma s ice cream sales amountedto $119 064, consisting of approximately 60 000 gaJlons (CX 24-Z 1).Its gross profit on ice cream sales was $39 144 , and its net profit onall sales , including frozen foods , ",as $2 472 (CX 24-Y).

Iarket Conditions

2. Dahl-Cro- s plnnt was located at Hilo on the Island of Ha-waii , and its area of distribution was limited to that island (CX24-X). So far as appears from the record , it did not distribute on theIsland of Oahu , on which Honolulu is located. As heretofore men-tioned , Dairymen s had a processing plant at Hilo and distributedfrozen products on the Islnnd of Hawaii in competition with Dahl-Cro- Ma (CX 16-Z 9). Although there were a munber of other icecream companies on thc Island of Oahu (CX 24-Z), Dahl-Cro-only competitor on the Island of Hawaii was respondent' s subsidiary,Dairymen s (CX 16-Z 9).

3. Complaint counsel contend that the " Island State of Hawaii" isthe geographic markct relevant to the Creameries of America acqui-sition (Reply Findings , p. J3). However, they propose no specificarea as being the appropriate market area with respect to the Dahl-Cro-:Vfa acquisition. It is the conclusion and finding of the examinerthat the Island of Hawaii is an appropriate market area in which toconsider the impact of the Dahl-Cro- Ia acquisition. Dairymen s an-

nllal frozen products snJes on I-Iawaii were approximately 100 000 to120 000 gaJlons (CX 16-Z 9). Dahl-Cro- s sales were approxi-mately 50 000 to 60 000 gaJ10ns annuaJ1y (CX 16-Z 9; CX 24-Z 1).On this basis , Dairymen s accounted for approximately two-thirds ofthe frozen products sold on Hawaii and Dahl-Cro-Ma accounted forapproximately one-third. Following the acquisition, Dahl-CTo-operations were consolidated with Dairymen s Hilo plant (R. 1341).

Dairymen s is at present the only company distributing ice cream atwholesale on the Island of Hawaii (CX 412).

3. Other Acq'uisitio1l8

1. The complaint ns amended charges respondent with having a.c-

quired 175 dairy companies , of which 77 are alleged to have been cor-porations engaged in commerce. Complaint. counsel have conceded , int.heir proposed findings, that the record establishes engag81nent ininterstate commerce by only 37 of these companies.132 Appropriate

'32 The 31 eompaniesllctuaIly involve 29 differcnt groups of companies, since some ofthe acquisitions involved multiple corporations which were commonly controlled. Thus,the Tro-Fe Dairy acquisition involved two corpol'fiions , an Alabama corpomtion find aTennessee corporation; the Dairyland acquisition involved its affliate company, Valdalr;and the Dothan Ice Cream acquisition in"'ol"'ed seven affliated corporations, plua apHrtnership.

BEATRICE FOODS COMPANY 647

473 Findings

findings have been hereinabove made with respect to each of the cor-porations which complaint counsel eontend were engaged in interstatecommerce. '" In order to provide a fuller picture of market conditionsin the areas \vhero respondent made acquisitions of corporationsclaimed to be in commerce , the examiner has briefly discussed the factsrelating to respondent s acquisition of 83 other companies (corporateand non-corporate) in these areas. The 55 remaining companies whichhayc not been hereinabove discussed or mentioned are either cor-porations with respect to which complaint counsel concede the recordfails to establish engagement in commerce , or are non corporate busi-nesses IV hich , in most instances , were also not in commerce. For themost part, these were small COlllpal1ies which were a.cquired for aconsideration of 825 000 or Jess.

2. The companies with respect to which iindings have not beenpreviously made were located in the States of Colorado , NebraskaICansas, Oklahoma, ,Visconsin, JHichigan, Tennessee, ICentucky,:Maryland , South Dakota and Oregon. Only nine of these companieshad annual sales of $250 000 or over. These companies and theirappl' oximate sa.les were: Superior Dairy of Pueblo, Colorado

($250 000); Sutter Dairy, Inc., of Grand Island, Kebraska($450 000); Weibel Dairy, Inc. of Enid, Oklahoma ($413 000);Eckles Ice CrellIn &, Dairy Co., Inc. of Baltimore, 1Iaryland

($446 000) ; '" Princeton Creamery, Inc. of Princeton, Kentucky($735 000) ; Kentucky Ice Cream Co. Inc. of Richmond , Kentucky($840 000) ; Mode) Farms Dairy of LOl1isvile, Kentucky ($2 950000); Daniel's Dairy &, Icc Cream Co. of Paintsville , Kentucky($518 000); and Medo-Land Creamcry Co. of Eugene, Oregon($4 200 000). Complaint counsel have conceded that thc record failsto establish that those of the above-named companies which werecorporations were engaged in commerce.

III. OTHEH ALLEGED ILLEGAL PRACTICES

A. Customer Assistance

1. 1VhiJc this proceeding is aimed principally at respondent'

acquisition of other dairy companies , tbe complaint , in Paragraph1:0 These have been grouped unrler 27 separate heurlings. Each of the acquisitions of

multiple , commonly controlled corporatiODs has been grouped together. In addition, theacquisition of two small Ohio companies claimed to be in commerce, viz , Gray & Whiteand Linton & Linton , has been discussed under the heading "Other Ohio Acquisitions

130 The Eckles acquisition involved the acquisition by respondent of 32.4 % of Ecklespreferred stock and 40% of its common stock. The company continued to operate as aseparate entity in Baltimore. There Is no indication in the record that, by this stock

acquisition , respondent acquired control of Eckles.

648 FEDERAL TRADE COlvMISSIO:: DECISIONS

Fi!ldings (', 1'.'1.

Eight , alleges that respondcnt has engaged in a 11umber of bnsiness

practices , most of which involve va1'iou8 types of assistQuca to CllS-

tomers, or discrimination in fayor of certflin customers. These in-clude, the loftning of money or equipment to customers, the per-

formance of special services , and the granting of rebates or c1is-

criminatory prices. ::Iost of these practices were the subject of anumber of proceedings brought against nine of the prineipallnflllu-factul'ers of frozen desserts , including respondent in this proceer1ing

(Docket Nos. 6172-6179, and (425). After extensive hearings , the

complaints were nltimately dismissed on the ground that the recordin snch cases did not "support a finding that these practices have

produced the requisite degTec of competitive injury to SUppOlt an

order to cease and desist" (Order Dismissing Complaint., Docket

No. 6174, May 23 , 19G5) (60 F. C. 1274 , lG20j. Complaints havealso been issued against some of the same companies , clmrging themwith the granting of discriminatory prices , allegeclly in violation

of Section 2(a) of the Clayton Act , as amended by the Robinson-Patman Act. Sneh a. proceeding is now pending against respol1(l-ent (Docket Ko. 7599).

2. At a pre-hearing conference held in this proceeding on Janmuy, 1957 , counsel supporting the complaint agreed that they would

not seek an order requiring respondent to cease rmd desist from en-

gaging in any of the acts and practices set forth in Pant-graph Eightof the complaint (see Pre-trial Order, February 8 , 1957). The PUI'-

pose in alleging such practices in the complaint herein was not tosecure a re-trial of the earher cases ) but to provide a basis for oftcl'-ing evidence to show the economic power possessed by respondentvis-a-yis its sma.11er competitors , so as to provide a bfwkgl'Olln(1 -fordetermining the competitive impact of the challenged acquisitions(R. 6 18).

3. Complaint counsel have submitted (1 nmnber of propm;ed iinc1-ings with respect to some , bnt not all , of the allegations in Para-gl'ftph Eight. The examiner does not consider it necessa, ry to nlftkeextensive findings with respect to these nJlegations. It is suifcienL

to note that the record does establish tlmt respondent has made 10:1ns

to SOtli8 of its wholesaJe eustomers and that it has expended sllb-sbntial SlH11S in furnishing cqnipment to sncll customers. :EImyc\'el'

there isnot11ing in the record to show that responclenes practicesin this regard are any different from those o:E (hir:!, companies gen-eraIly, or that their expenditures faT sl ch purposes are greater thanthat of other dairy companies, in proportion to the amount of

BEATRICE FOODS COMPA.-"Y 649

473 FinclinC;"

business done by them. The record also esta.blishes that respondenthas granted rebates or volume discounts to wholesale customers.Ho-wever, there is not.hing in tIle record to establish that respond-ent' s practices differ fr01l1 that of the other dairy companies or thattheir practices may result in substantial injury to competition.

B. "J\hl'ket Leverage

4. Althongh not charged in the complaint as an iJlegal prncticecounsel supporting the complnl11t contend that respondent has de-

liberatelv sold l1Tilk or ice cream in certain arens nt unreasonably1mv priZes , while ll1aking abnormany high profits in other areaComplaint counsel assert that respondent has llsed its economic pmyel'or market leverage" to " act inclivichwJly in specific mflrket areasso as to give it a competitive advantage over a Jocal single-productcornpa.ny or a local multi-product company" (Findings , p. 19). Insupport of this conten60n complaint counsel cite a number of in-stances in whic.h varions of respondent's pla.nts operflted at a loss

in either the 1nilk or ice creanl product line.G. Respondent does not de.ny that its profit and loss st.atements

"\vhich are in evidence , pm'port to sho\V that it sustained 10sse,o; incertain of its plants. It contends that some of these losses were meTebookkeeping losses , as 'ihcre fl. bnmch plunt which did not manl\-facture ice cream '.yas charged a price above the cost of the mallll-facturing plant. In such instances , if the records of both plants tn'combinec1they show an overr111 profit. In other instanees where therecords disclose a loss on one product an(l a proflt on another , l'P-

spondcnt contends tlwt this resulted from the al'bitn"L.ry assignmentof indirect e:spenses to n. particlllar product, and that if SHch eXpeJl2eSwere ratab1y diyidec1 , the record::; y,onld reveal a profit on 8.11 proc1-llcts. Respondent concedes thnt in 30me instances it.s plant.s did infflct operate at a Joss , bnt contends that this was not due to nnydeliberatc policy on its pn.rt. Certain of sneh plants : which were notconsidered to be effelent plnnts

, \''

cre later elosed.

G. The examiner consiclers it unnecessn:l'Y to make extensive f-intl-ingB ,':ith l'e.sp ct to t118 contention that respondent used its economicpmY8r or market Ic,,"er:"Lge unfairly. It is suffcient to note that therecord is lacking in substantial evidence to Sli.pport n. finding t.hatrespoildent deliberately incllrred losses in one area 01' in one productanel/or obtained almormnlly high profits ill other areas or with re-spect. io other products. l-Tmvever , '.,l1iI8 tIle charge that respondenteng!1gcd ill '.yh:lt complaint counsel rder to (18 " predatory " pricing

79-702--71--

650 FEDERAL 'l'RADE cO:\I1nSSION DECISIONS

CondusioTIS 57 F.

pmctices is not sustained by the record , there is no question but thatit enjoyed considerably greater market leverage than did its smallercompetitors. As the Commission noted in the Proctor

&:

Gamble 00.case, Docket 1'0. G90l , Nm-ember 26 , 19Ci3 L63 F. C. 1465J, a multi-

product firm operating in many markets enjoys "greater flexibilityin pricing" than its smaller single-product or single-market competi-

tors. This m ty lead to "belmv-cost selling of a particular product"enm "without predatory motive." The likelihood of this occurringis particularly pronounced in the da.iry industry, which is highlycompetitive and \y11e1'e profit margins are narro\v. 135

COXCLUSIONS

1. AS TO THE ACQIDSITIONS

A. Applicable Legal Principles

1. This proceeding involves principally a question of the legalityof a series of acquisitions by respondent of the stock or assets of anumber of other dairy companies. The only statute specifically deal-ing with the matter of acquisitions is Section 7 of the Clayton Actas amended and approved December 29, 1950. Section 7 prohibits

the acquisition by a corporation engaged in interstate commerceof the stock or assets of another corporation engaged in interstatecommerce where ':in any line of commerce in any section of thecountry the efl'ect of such acquisition may be substantially to lessencompetition, or to tend to create a monopoly." The constituent ele-ments of a Section 7 violation are, (a) that the acquiring companybe engaged in interstate commerce, (b) that the acquired companybe engaged in interstate commerce, and (c) that the effect of theacquisition may be substantial1y to 1essen competition , or to tend tocreate a, monopoly in any line of commerce in any section of the country.

Engagement in Oommerce by Acq1li1inq Oompany

2. There is no substantial issue raised here as to the acquiringcompany s engagelnent in commerce. Respondcnt admits in its an-swer that it and its subsidiaries are engaged in commerce , with theexception of ':its inactive subsidiaries " and scven named subsidiaries.Since, with one possible exception , the acquisition of other corpora-tions engaged in commerce were n1ade directly by respondent, ratherthan through a subsidiary, it is unnecessary to consider further at

13; During the period from 1951 to 1958 respondent' s profit on sales, after taxes,ranged from a low of 1.70/ to a high of 2.3% (CX 418. PP. 18-19).

BEATRICE FOODS CO:vPANY 651

473 Conclusions

this time the question of TVhethel' the particular subsidiary was en-gaged in commerce and, if not, whether the acquisition wouldnevertheless , fall ,vithin the scope of Section 7 since the parent corn-pany was admittedly engaged in commerce.

Engagement in OOlnmerce by Acqu'/red Oompany3. Two issues have been raised ith respect to whether certain of

the acquired companies were engaged in commerce within the Ineall-ing of Section 7 , (a) whether the acquired company must be engflgec1in interstate commerce in the line of commerce in which the adversecompetitive impact required to be shown by the statute occurredand (b) whether a company which sells entirely within a Statebut which purchases dairy supplies from outside the State, is en-

gaged in commerce. ,Vith respect to the first issue , the Commissionhas already held in the Fonmo8t lJw:pies , Inc. case , Doc1\:et No. 6495April 30 , 1962 r60 F. C. 944l that it is suffcient to meet the juris-dictional requirements of Section 7 if the acquired company is en-gaged in interstate commerce in any line of COJ1UTIerce in which itdoes business , and that it is nnnecessary to show that it was engagedin interstate commerce in the line of commerce claimed to havebeen adversely affected by the acquisition. As a hearing examinerof the Commission , the undersigned :is bound by this precedent. 'Vithrespect to the second "commerce" issue raised by respondent , it waslikewise held in the F01'1nost Dairies case that a company whic11

regularly purchases dajry supp1ies from outside the State is engagedin interstate commerce, even though its sales take place entirelywithin the State. The cases eited by respondent , such as Higgins v.Ca1 r Bros. 317 U. S. 572 , are in nowise. contrary to the holding in theForemost ca,se. They involve principally the coverage, under theFair Labor Standards Act, of employees engaged in activities whichoccurred after the ont-of-State goods had come to rest within theState. They do not hoJd that the ordering and receipt of goods fromant. of the. State does not constitute engagement in conunerce.4. In connection with the issuc of whether the receipt of goods

from out of the state constitutes engagement in commerce , respond-ent makes the further contention that , even assuming such transac-tions arc in commerce , complaint counsel have faiJed to establishthat snch out-of-state purchases ,"'ere of more than de minimis pro.portions. Respondent cites a number of cases arising under the Fair

Labor Standards Act, in which employees spending only a smaJl

fraction of their time in the handling of interstate goods were heldto fall within the de minimis rule. As respondent notes , the Supreme

652 J1'EDEHAL TRADE COM1\IISSION DECISlOKS

COlldno;i()!1, 07 F.

Court in Jla0ce Y. 1rhh' e Plains FubZ18k?n-(J (/0. 327 l). S. 17S sub-sequently heJc1 that the dB minimis doctrine had no appl.ication tothe Fair Labor Standards Act because the Act is made specifical1yapplicable to the shipment in commerce of "any" goods proc1ncec1

in -dolation of its prmrjsions. Howe\'cr , 1,yhile stating that there ,,,asno wa.rrfwt for assuming that reg1l1ar shipments in commerce areto be included or excluded dependent on tl1eir size " the Court , n8,-e1'-

theles8 , ackno\'ledgecl tbat '; sporac1ic or occasional ship111cnts of in-substantial mnounts of goods ,yore not iIltended to be included" inthe Act's coverage. Unlike the Fair Labor Standards Act, the Chy-ton Act does not speak in terms or the shipment of "ani' goods incommerce. It is reasonable to assnme , therefore , tJwt the ordillflryde minimis rule would apply in connection with establishing whetheran aCfJuired company T\'S engaged in commerce. ,Vhile the examineris not nware of any cases arising uncler Section 7 or the Cln tonAct in which the rule has been helel to be applicable, it 11GS been

held to apply ll11cler the Robinson-Patman Amendment to the.Clayton Act , which like,,' ise uses the phrase "enga.ged in commerce.Sk;'iJ,'('/ \ U. S. Steel CorlL 2;11 F. 2(1 76;: ! (CA 5 , IDi')()).

The P,'odltct Almket5. The competitive impact of a merger or acqllisit,ion mn t be,

determined -with re.ierencc to some "line or commerce. " It is :now1ye11 estabJjshcc1 that t118 phrase "line of commerce/, as used in Stion 7, l'e1crs to it " releva.nt product or services market." U. S.

Phi7u.deZpkia iVaNonal Bank 374 u. S. 321 , 356. CompJaint cOllJ1sel

IJropose , as the relevant product l1itrkcts

, "

dairy proc1ncts" generally,

end ""1'ions specific types of dairy products , snch as bottled fiuidmilk and ice crean). They aJso propose the n1anufacturc and sale ofcCl'tnjn specific dairy products t.hrongh different channeJs oT dis-tribution , such as wholesale and retai1 , llS separate product markets.

6. It has been held t.h8t. t.he "ollter b01mdaries of a proc1nct marketare determined by the reftsonable interchangeability of nSB or thecross-e1asticity oJ c1emrmc1 between the product itself and snbstitutcsfor it " bnt tlwt " ithin this broad 111arket well-defined snbmarl::ets

mfLyexist lillich , in th,-'msclves, constitute product 111r, l'kets ror anti-trust pl1rpcses. Bro/en Shoe Co. v. 370 U. S. 294, 325. The recordin this proceeding does not disclose any sncll ;' intcl'changcability ofuse" or "cross-clasbcit y of c1elnand:J between the YH-rioHs specific prod-ucts of the industry, 8S to justify fl finding that dairy products as

whole constjtute ;1n nppropriate product market. Companies whichproduce and cli!'tl'ibntc prO(l11cts clerivecl from flllicl 11jJ11 are ('011-

BEATRICE FOODS COMPAKY G53

C()ncln. ;OllS

sidered , in the broad sense , as being in tlJe (h-iry products industry.Companies in the dairy industry are classified 8n:11 more broadly byt.he Burcau oJ t.le Censlls : as being in the "Fooel and IGndl'cd Prod-ucts : industry. 1-Imyey('l' , the prod nets or this broad inclnst.rinl gronp-ing Hl'e divided in o separate, industry categories snch as "Fluid::Iilk Ice Cream and Iccs

' ';

Creamery J311tter )J ';?\atlll'a1 Cheeseetc, (CX 4H). ,Yhile t1Je.l'C a.re some companies -which prodlH:.e mostof niB prOcll1ets tllft can be brofldly classified ns da.iry products , theYilst majority of the eompnnies precess and distribute only certainspecific types of dairy products. For example , there are a great manycompanies Iyhie)1 pl'oeess nr1 dist.rilmte only fluid Inilk productssuch ac; botth c1 fluid milk : cre : sbm milk and chocolate Inilk.There are a. llUnhel' of comp mj('s "which manufacture ftnd dish,jbnteonly ice (Team and other frozen desserts. There are a number of spe-cialty companies prmlncing such pr(Jcln ts HS cheeses or butter.

7, It i::; the conclusion and iind1ng of the. examiner that the relevantproduct )T,lJ'kpts in tIllS proceeding are , the processing and distribut-ing of bottled fluid milk (including whoJe Jnilk, cream, skim 1111k

bnttennilk and flnyol'c(l milk) ; the mannfa.cturing and clistributingice cn'am and ot.her frozen desserts (including icc milk, sherbets

ices , 11c110rine and frozen noyelties) ; the manllf,lc.nre and dist.ribut-ing oJ frozen (lessed. mi:.;es; the precessing nnd distribnting of but--te.r: tJle processing a.nd (hstl'ib;lbng of cheese; and the processing andc1istl'ibnting of conc!rw;c'd and eVf1liOr,ltec1 milk. The :fuid milk prod-uct. linc ma Y be flll'thel' s\llxli"ic1Grl into distribution through whole-sale lmd retail channels : a1thollgl1 the economic signific.,ance 01 thisdivision has large.)y cllYlnc11ed ::ine8 most c.ompflnies distributethrongh hoth l'cbil storcs and 110me c1c1i\ ery. '1'h8 h'ozen dessertproduct line inyolyes principally dist.ribut.ion through wholesale

lnneJs since there. is little 110110 c1eli,-ery b:v mUllllfactllrers, Thereare ;;orne compnnlrf; which sell through their O\Y11 ret il storE'S frozcnc1ess0Tts mnllufllctllrec1 on the IjrE'lnises. I-oweyer : none of the corpora-tions engt1gcd in l'Olillwrce. wJ1ieJ1 IH' rD ;;cCJnirec1 by respondent fnnin the rEtail cLl sjfication.

The Ciro,qi'aphic Narkc!Sa. The product mnrket jn \yhich comp8tjtjyO impact is to be de-

termined HUlst a.Iso be related to fL "section of the conntry , as ithas becn cliiferentl ' described , to ft '; re.levant ge.ograplJical market.

S, Philadelphia Ned. Eai1k : 8I/ jh'Cf at. 3;3fL As in the case 01 aprodnct market , yrJJicl1 m(l - lw cli';isible into proclnct sl1bmarket.s

, "

J1n :v 11 geographic nbmarkel JJ( (,(JJsiclerE'll tIle :1PprolH'j,ltr sectioll

654 FEDEHAL TRADE C01IlIISSION DECISIOXS

Con('nsioJls 07 F.

of the count.ry.

:'

Bi' OH' 'IL Shoe C' o. v. U. S. , 8'Upi'a at 336. Further-more , the approach to defining (l relevant market is "a pragmaticfactual" one and "not a lormal , legalistic one. (lbid. Since it iscompetition ,,,hich Congress was trying to preserve , a delineation ofthe geographic market area does not depend merely on "wIle1'e theparties to the merger do business or even where they compete, butwhere, within the area of competitive overlap, the effect of themerger on competition ,\ill be direct and immediate, U. 8. v. Phila-delphia Nat. Bank , supra at 35'1. The scope of this area, "depe,ndsupon ' the geographic structm'c of supplier-customer relations(ibidJ , as the Court stated " in a related context ' the area of effec-tive competit.ion in the known line of commerce must be charted bya careful selection of the market. area in which the seDer operatesand to 'Which the p1!l'lw8ei' can practicably turn fOT supplies. ' TampaElectrtc 00. v. 1\7ush'cille OoaZ Co. 365 U. S. 320 327 (emphasis Sllp-plied). (Id. at 359.

8b. Applying these principles to the dairy industry, in which distribution patterns are loeal or regional , rat.her than national , the scopeof the appropriate geographic nlarkets must be determined notmerely in terms of the. area in which the acquired and acquiring com-panies operated , but. ,)itll reference to the pattern of supplier-cus-tomer relations in the area whieh will be affected by the acquiredcompany s departure as an independent business entity. The acquiredcompan).' s distribution area is merely a point of departure for deter-mining t.he sources to which its cnstomers ean practicably turn forsupplies. Since the ultimate quest.ion to be determined is one of effecton competition resulting from the acqnhec1 company's depa.rture , it

is necessary to draw a line ",-hich will encompass the distributionareas of the companies with "which it principally competed and towhich its cnstomers could hun as a1ternative sources of snpply. Indetermining the area of eifectivB competit.ion , an appropriate balancemust be made between the distl'ibntion patterns of the competinglocal companies ,,-hieh Congress wns seeking to preserve as compet.i-tive entities , and those of large nationnJ 01' regional eompanies whichdistribnte into more than one llHlrket. To the extent that the lattercompanies have con olidated their production faci1ities in the intBrestof achieving the economies of 1al'ge-srale production, but c1istl'ibnte

into remote areas through Sepfll'nte sllbplants or distribution branchesthr,y ma:v be regarded as opprating in InuJtiple markets.

0011l'etitit' e Etlert9. Given the necessary jnris(1ictionnl prerequisites , the test of the

legalit.y of nn acquisition under Section 7 of t.he Clayton Ad is

BEATRICE FOODS COMPANY 655

473 Conclusions

whether "the effect of such acquisition may be substantially to lessenconlpetition , or to tend to create a monopoly" in any product line inany geographic mal'li:et. The "effects : clause in the statute is couchedin general , non-specific terms. Hm'\Cver, its meaning may be gleanedfrom its legislative history, a,nd especial1y from recent court decisionsinterpreting that history and applying it in specific factual situations.

10. Any attempt to interpret the, general language of the statutemust be made against the background of the "dominant theme per-ntding congressional cons deration of the 1950 amendments (whichJwas a fear of ",-hat was considered to be a rising tide of economicconcentration in the AmCI'ican economy. Brown Shoe Co. v.

81tpra at 315. Accompanying this concern was an affrmative, conyic-tion as to "the desirability of retaining 'Jocal control' over industryand the protection of sma11 businesses.": Ibid. In addition to giving

recognition to the congressional mood which was responsibJe for theamendment to Section 7 , it is also necessary to bear in mind thatSection 7 of the CJayton Act was enacted because of what was con-sidered to have hee-n t.he- ineiTecti\'eness of the ShernHll1 Act "in halt-ing the growth of .trusts and monopolies.

::

8. 'T. Bethlehem SteelOOTp. 1G8 F. Supp. :,7G (SD XY , 1958). In using the words maytend substantially to lessen competition :: (emphasis supplied), Con-gre-ss was thinking in terms of the "reasonable probability of com-

petitive injury, and not the "certainty " thereof. Brown Shoe 00.v. : 8ltp'i' at 328 , n. 3D. It recognized thnt: "A requirement ofcertainty and actuality of injury to competition is incompat.ible with

any efiort to suppJement the Sherman /\.ct by reaching incipient re-straints. Ibid. At the same time , it indicated that the a,mendme.\\'ould not apply to " the mere possibility of competitivc injury.Ibid.

11. Despite the foregoing expressions of congressional :intent. therehas been considerable argument concerning the quantum and type ofevidence which , while falling short of establishing actual competitivein.il1l'Y or the certainty thereof, does establish the reasonable proba-bility of such injury and not the mere possibility thereof. ,V11ile it

has been generfLlly agreed , in theory at least , that a full-blown show-ing of monopoly conditions , of the type sufIicicnt to meet the ': uleof Reason" requirements of the Sherman Act, is not necessary in aSection 7 case, there has beeJ1 considerable disagreement as to justhow iar it. is necessary to go to establish the "reasonable probabilityof an a,dverse, eompetitiye :impact. Snch disputes have tended topolarize between the 8dl-oca1es of a "quantitatiye sllbstantiality" test

and those acb oC'ating. a '" qll 1itative substantia1it:'/' test. Sce "(7 8. v.

656 FF;DERAI TRADE CO:\E\IISSION DECISIONS

\.'

!l('lusjOll. GT F.

Bethlehem, Steel (' Oip. : 8ul))a at 378 )1. 31 , and case cited therein; seefI.lso Doh: Sectiun l of t!te Oleylon Ad and the JI e'l'ging of Law andEcono.mics 74 I-I8.l'v. L. Hey. 2- 10 (19GO); I-Iftldlcr and Hobinsol1Decade of AdTi1ini8h' at':O;1 0/ the Cel1cT-I(efau.'L' er AnthneTger ActColmn!)la L. Hey. Gil (1961).

12. 1\111'11 of the. eontl'OYeTS c stenlS :h'Qll rdtempts to oversimplifythe holcll11g- in the. Stailda'i;d ,S'idio'is C8.se (Starodanl Oil Co. ,T, U.

337 IT .S. 293), as l'esting entirely on the quantitative substantialityof the market share :fore.closed. (Althongh Shrndarcl Blah ons aroseunder Section;) of tlJe. Clayi-ml Act which deals with e::clnsive deal.ing ancl tying flrrHllgelle,nt:3 , the ;;eITeets : chm:e is substantially iden-tical with that nnder Section 7, ) l G It has evcn been suggested that inthe Tampa Ehdl 'ic lSC (TenJprt E7ecfi;ic CO. Y. Nash'uille (/ocd 00.36:) 1.T.8. 3:20), tJm Supreme Court nbanc1onec1 the quantitati\ e snb-

stanti,tlity test. of8land(fFd Stations llnc1 " returned to an interpreta.-tion of seet,ion 3 of the Clayton Act \\hich is faithful both to its legis-Ja.t-lye hi;:;tOl' ' ,111(1 tL2 pltilosophy of fmtitrllst. : Handler Rece' nt Anti-trust J)ecc!o 'J'i)(C,i 71 Yflle L. .T. 81 (IDG1). ,Vb ether the originalintcrprett: tiolls 01 the Slmi.da, d ,, !atiowJ case llS establishing a. quan-titative sl1b ,;talltia1it T test. Iyc:'e justified or not , it is now clear fromthe Supreme: Conrfs recent analysis 01 the Section 3 cases, in itsl-)hiladelphia lYat. Baii, X; d2('i8ioll tJwt the Court -itseH does not re-garcl its In:ior holc1in.g's as l'esting solely on the subst.ant.iality of theshare of the market, foreclosec l. The Court in the Philcule1ph-iu iVat.Balik c.a e noted the presence 111 Ole earlier enses or snch other market:factors as , the Sl1lJst::mtial llllll,:p.t position of t.he company involvedt.he extent. of concentration, the use of similar restrictive ngrce.ments

by ot,her 11lljor companies mc1 the possibilities of newcomers enteringthe.mD.rket.

1:3. Despite the doubts Iyhich h c ve been expressed in the pastconcerning the application of the Section 3 decisions to cases arisingundor Section 'i (see , for enmple PiZlsb1iTY illiZls , Inc. 50 FTC 555),

13G Such contracts arc prohibited "

\'.'

bere tile eJ!cc: (t!lc,'coil m:1Y bc 1(1 1l11 I:tinilylessen COlillE'Ution 01' leI r1 to crcn.te a lionO)Jol ' in auy )jjje of con;:l1ercc,

7 Tbus the Court noted (at ,jC(;) thaI in ' lJe Stallr/tinl StIt/f)il", case , 1101 O,jl' llicl 011'llefelld::nt )',I,e 7% of the llflrket lier1 \11' by e"c111 :Ye ;.l:Tl'CJilents, b. l1. it acco1.l)ter1for 2i)'!( of the :1:'f'f! :11es (th\1s fZuggesting" the pO fiilJility of f\;l'lJer m::,rj,et foreclOSllreby it) ; in adctitiOll, the other m jor compO-nil's 1''-l'1'e using simil:Jr restrictiye agreements,Dd tlrc , tog:etlle.' with the clcfe;lc1:Jnt, Dccounted for (l5% of the i1l"ea ales, It tool;:

notf' of 1hf' existf'nce of l siu:ilar patterll in rTC v. JIl)tion Pictllre A(/i: -,Crt' . Co. , ;-141S. c;02, wIJere tJle (1efefJ1 lnt acconnted for 20% of the mnrket Ilne! t'.1'ro' " :mlin:'

COnCelT S had fOl'edosed 75 % of t11e m.nket, Commenting- on the \'xe!n;;jyc l1e'11ing ens;:;;,the Court ob er,ed: "Doubties" tJ1e e Cflses tc1lnee! to some extent \:P'H! wJ1€thf'r ' " the

nature of the 11::\l\et thel'e is room for n",,\' C011H'1"-:: PTC , JIGtioil PIr.&I1!' Jrll.rrtis;;rfS'cn:icc CD. , Sllpra at 305.

BEATRICE FOODS COMPANY 657

473 Concln.::jons

it is now unmista.keably clear that the two sections must be inter-preted in pari materia. As noted by the Supreme Court in thePhiladelphia Nat. Bank case 8"prc at 365:

The House Report states that the tests of ilegaliy nnder Section 7 "areintended to be similar to those whicl1 t11e courts llf1.Ye applied in interpretingthe S:lme Jangnnge as 1.1.::("1 in other sections of the Clayton -\ct." I-I.R. Hev.Ko. 1191 , 81st Cong. , 1st Sess. 8. Accordingly, ,"ye lune relied upon decbionsunder these other sections in applying Section 7.

14-. ,YhiJe it is now cleaT that the ratio decidendi of the exclusivedealing eases rests on more than ll1erely the qmmtum of commerceforeclosed , it is also cleaT that the holding in such cases does notrequire any fu11-blown investigation into a wide spectrum of market:factors. :,s Nor is any greater shmving required in Section 7 casesthan in exclusive dealing cases since , as stated by the Court inPhiladelphia Jl7at. Bunk , SUJJ1' at 366 , "integration by merger ismore suspect than integration by contract, because of the greater per-manence of the former." The Court's holding in that case restedprincipally on the factors of substantial market shares and subst.an-tiaJ incl'e.ase in concentration, and it cited in support of its conclu-sions the "market share and market concentration figures in the con-tract integration cases." In its earlier holding in the Brown Shoe

case supra at 322 n. , the Court also recognized that " (sJtatisticsreflecting the shares of the market controlled by the industry leadersand the parties are, of course, the primary index of marketpower

'" * *

15. It is true that in Brown Shoe the Court, after noting the

prim tCy of market share and concentratjon data, also observedthat "only a further examination of the particular market-its struc-ture , hl tory and probable :future-can provide the a.ppropl'jate set-tjnp' - for :jl!l('iOlg tlw pl'o()ah1e ,Ull clt'ecL of the E', crgcr.This does not, however, require any probing in depth of market con-ditions. The Court itself, in lJl' own Shoe (at 322) alluded to some of

the other factors which could properly be taken into account

, "

vary-

13S'There is little justification for tbe sugg-e tion nlln(1ed to n1Joye tbat Tffm!Jr Electric(,O!lstitute a rD.diClll departure from StandlJnl StntiullS ar.rl require;; a lJl. fl inye Ug.tion :nlo m:ul;et factor;;. The Court "\vlliIe noting ill Stnm/(I)"l Stations (8.::7 Lf:. BOG), th t '' 'iug ag)"cement "erye bar(l1 ' an - jJurpo"e 11c HnrJ the ",lJlP ess:on ofcompetit.ion " reco,!llized (at 30G) tllit: " l-em:il'ements cont, :!c" . 011 the other :wn(l.mfty "'en be of ecolJOmic adycntnge to buyers ;,,, 'well ITS seller" . flJH1 thus im1irccth' of:HIY:lltage to the consuming IJl;b,;c. Ta,'lpa L'/ectric invol,ed :1 case ,,-JJc\'e the :ll'i,Ulf'';-ment wns (leemp.rJ to be for the economic advantage of the customer and wl1er('. moreover,there was "ncither a seJler '',itll a domjn l',t position in tbe market as in taH(/anlFashions, supra nor m:rriad outlets with llb ta:.tial saies yoll1iJ:e , couplu1 "\vH1J .

inc1nstr:' -widc practice of rel;riIlg upon cxcln iYe contracts, :1S in Stnllrlanl Oil, 811-pra

,. ,.

" 365 U.S. at 3(;-

658 FEDERAL 'TRADE CO:\J:\IISSIO:\T DECISIOXS

Conclllsion Gi F.

ing .in importance with the merger under consideration " viz, (a)

whether the merger occurred in an industry "that was fragmentedrather than concentrated " (b) whether the industry "had seen a re-cent trend toward domination by a few leaders or had remained fair-ly consistent in its distribution of market shares " (c) whether there

WflS " ea,BY access to markets by suppliers a,nd easy access to suppliersby buyers " and (d) whether the industry "had witnessed the readyentry of new competition or the erection of barriers to prospectiveentrants. However, while these are aU relevant factors

, "

the Courtdid not imply," as the Commission had occasion to observe in the

B?'ilo Man1ljacl1ll'ing 00. case , Docket "No. 655i , July 31 , 1963 (64C. 245, 258J, " that al1 of these factors would be relevant in

every case.lG. In the Philadelphia Nat. Bank case, its most recent expression

of opinion on the antimergcr section , the Court (at 362) made pointedreferenee to "the danger of subverting congressional intent by

permitting a too-broad economic investigation;' and suggested that"in any case in which it is possible , without doing violence to thecongressional objective embodied in Section 7 , to simplify the testof illegaJity, the eourts ought to do so in the interest of sound andpractica.l judicial administration,n Alluding to its earlier observation

in t.he BTMun Shoe case that the "dominant theme pervading con-grc3sional consideration of the 1950 amendments was a fear of whatwas considered to be a rising tide of economic concentration in the

American economy," the Court stated (at 363) :This intense cOllg'ressional concern with thc trend toward concentration

warrants dispensing, in certain cases , with elaborate proof of market structurellUll'ket behavior , or probable anticompetitiYe effects, Specifically, we thinkthat a merger wbich produces a firm controllng an undue percentage share

of t11e relevant market , and results in a significant increase in the concentrationof firms in that market, is so inherently likely to lessen competition sub-

stantially that it must be enjoined in the absence of evidence clearly showingthat the merger is not likel;y to ha,e such anti-competitive effects.

n. Further evidence that Congress did not intend to require a

broad examination into market conditions may be gleaned from theil1ustra.tiolls, appearing in the 1egislative history, of the type ofmergers which would be proscribed under the statute. The HouseReport. tII.H, Hep. o. 11\11. 81o;t ('onp:.. 1st Sf's::. 8), as sllI1l1flJ'izcc1ill the Brown Siwe case supra at 321 n. , stated that the adverse

effects to which t11e statute made refcrence-* '" '" could be per('dved through findings. for example. that a whole or

ntatc-ial part of the eompetitin.' acti"it . of fUl enterprise, ,,,hich had been asubstantial factor in competition , ll:-Id open e1iminated: tbat the relative size

BEATRICE FOODS COMPAKY 659

473 Conclusions

of the acquiring corporation had increased to such a point that its advantage

over competitors threatened to be "decisive ; that an "undue" number of com-peting enterprises had been eliminated; or that buyers and sellers in the rele-vant market had estalJlished relationships depriving their rivals of a fairopportunity to compete. (Emphasis supplied.

Also significant, as reflecting congressional intent, are the examplescited in the Brown Shoe case (at 319) of the type of mergers whichwould not be proscribed under the statute, viz

, "

a merger betweentwo small companies to enable the combination to compete more

effectively with larger corporations dominating the rclevant market(orJ a merger betwecn a corporation which is financially healthy anda failing one which no longer can be a vital competitive factor inthe market.

18. From the foregoing, certain guide lines may be distilled forjudging the acquisitions in the instant case. First, it is clear thatwhere a major factor in a market acquires a substantial competitorwith the result that there is a substantial increase in concentration

in the market , the acquisition wil be deemed to have the proscribedstatutory effect, in the absence of evidence " to rebut the anti com-petitive tendency manifested" by such a factual showing. U. S.

Philadelphia Nat. Bank , supra at 366. A clear example of such amerge.r is that involved in the Philadelphia Nat. Banlc case, in whichthe merger resulted in a company having a 30% share of the marketand in a 33% increase in concentration. 'While the percentages in thatcase were obviously high, the Court made it clear that it was notforeclosing the possibility of applying the same principles in a easeinvolving smaller market share and concentration increase percent-ages. 139 Even where a particular merger does not result in a substan-t.ial increase in concentration , but is made by an important factor inthe industry and involves a company which cannot be classified asoeing of small or negligible proportions, it may violate Section 7if it occurs in an industry which is oligopolistic or is trending inthat djrection , or in which entry is becOlning increasingly more diff-cult. An example of such a merger is that involved in the BrownShoe case, in which the Court considered a combined market shareof onlY 5% in a number of the Jocal markets as significant, wherethis share is held by a large national chain" and where there was a

history of tendency toward concentration in the jndustry. ld.

44-34,

13g The Court stated (at 364 n.4) :Xel'(11l' s to sar, the fact that a merger re ultf' in :: le th:1Il-30% m rket "hare, or

in a ;eH taTltlal Increase in concentration than in the instant case, do(' not raisefW inferenre that tlle merger is 110t violative of 8ectioll 7. See g" Br01Pl Shoe Co.,

II pl' lI.

660 FEDERAL TRADE Co:vrMISSION DECISIOXS

Conclusiolls GT

19. The dividing line bct11-een small and llan-small companies , forpurposes of determining compet.itive impact, is sometimes hard todraw. In Orown ZelleTbach v. FTO 296 F. 2cl 800 , 818 (CA 9), thecourt defined a "small compani as one "whose total 8a1cs and com-petitive impact was so small re1ative to all sa.1es and a.ll competitionin the market that it lacked real importance." I-Iowevcr, any deter.

minination of whether a company is so small "that it lackecll'eal il1portance " must be made in the light of the congressional intent .:reach incipient monopolies and trade restraints outside the scope orthe Sherman Act. B1'wn Shoe v. S" supra at 318 n.32. As stated1J) B. l1. neI'- Xo. 1191 , 31st Congo tst; S s. 8 , which is cited in theBi'own Shoe decision (ibid)

Acquisitions of stock or assets have a cumulative effect, and control of themarket " may be achieved not in a single aCCIllisition lmt as the result of aseries of acquisitions. The bil is intended to permit interyentioll in suellaccumulative process when the effect of an acquisition may be a sig'ni1kantreduction in the Yigar of competition.

0. The application of the foregoing principles and guidelinespresents no serious problem in cases involving strictly hOTizontquisitions, IVhe1'8 the IT! 1'ket sl1arcs of the acquired and acquiringcompanies, and tho extent of concentration in a pa.rtienl r market

haTe an obdous relationship to t.he probabilit1e of an adven:c com-

peLiti\"e impact on tlw market. Theil' application is more c1iflcultin 2itllations ,y11e1'e the acquired and acquil'ing companies do notcompete in t.he same market, and where there can therefm:e be nodiscernible inc.eLlse in concentration in the market occupied by the

acquired company. Snch acquisitions. in ,yhich the acquired flldacquiring companies are in the sa.me prochlct line , but do not Qll

in the S J1e geogr phic E1arket, a.re rcfcrrccl to as ' l'narket- ext.en3ion

acquisitions. FOTemO,s"t Dai-ties , lnc. Docket No. G40J April 3(J. 18G

(60 F. C. 944J: Procter 0(1117)71. Company. Dockrt No. 6

November 26 , 19(i:J (G3 F. C. 14G3l They are consiclcl'cll to be akinto conglomerMc aequisitions, lmt are dc-:eElec1 to 1J8 mor8 c1c.:oe,

rclated to horizontal acqni it.ions to the extent that thEY i11yo1\ecompanies ,,'hi('h are in the saIne inc1u t.y, IIO\YCH' l' sLleli nC'luic:itions

may be designated , it, i cleflr t.hat they flre rene:;lable under Section7 since " r a! 11 mergers are ,Ylth i11 the re\\(',h of t.he nmcnde l Section

, '

.Yhether they be classified as horizontal , ye,l't.ical or cong1()nWr;lfeand all arc to be tested by the same stnn(bnl. Procter G(11)7)le

/)I '-I p. 15;t6.

1JOThe nbo,e quotation from the focter d' Gamble cl1 e i e(l on H. R. 1:1';' XC)IHJ1 , Sl t Cong" Jst Sess. 11; I1n(1 Brown Shoe Go. S. Slip!,f/. ,1t 17 n, :i1.

BEATRICE FOODS CO:VIPA:NY 661

ConcllIsions

21. ,Vhile such quantitative fa,dors as the acquiring companymarket sharc in the acquisition area, and the increase in conCC11-

trillion in that area , arc 01J\'iol1s1y not. reIe\' :111t in 11 J1Jarlmt.-2:;tcllsicn

sitwnion , there are a number of similar factors ; quantitative andothcr,yise, ,vhich have u bearing on the qllc.stion of an adverse com-petitive impact. In the Foremost Dairies case the Commission consid-ered national and stat.e market-share and cone-cutration data., thegro\yth pattern of the acquiring company, 'i the ' leverage ' advantagepossessed by )argo, diversined and geographically dispersed firms

the type of firm which was being eliminated and the potentia1ityof competition bet,vccn the two firms. In the Procter Gamble easeamong the factors considered by the Commission , were the positionof the acquiring company in other markets , the "relative disparity insize nnc1 strength:: between it and tbe other companies in the inc1ustry it was entering, the. extent of conce.ntration in the industry(a1thollgh the markets were found t.o be regional), the economiesenabled by the rnerger , and the potentiaJity of competition betweenthe two companies.

:22. Hesponc1cnt suggest.s that since the L nitcd States and the in

divic1ual states are not areas of effective competition , it is not ap-propriate to consider national or regional market-sha :e and concen-

tration data.. \Vhi1e it is true that the markets in the dairy indus-

try are esscntially local in nature, the record demonstrates thnt,"'hat. is occurring in the local market.s is a reflection of a trend whichis not peculiar to anyone area. Evidence of national or reg'ionaltrends may appropriately be considered in cletermining the probableimpact of an acquisition in a. particular area. Furthermore, the

power possessed by a company in other geogra.phie or product mar-1,81: JJflS :1, lJf'f(l'ing on ,ylmt lnay be. ftnticipflte(1 in (l nC\y1y cl1:erE'dmarket.

23. The record in this ease , as in the FOTemost Dairies case , dem-onstrates " the ' leverage' advantage posse.ssec1 by large, diversifie,d

alH1 geographically dispersed firms. " The Commission in the Procter

&:

Gan"&blc ca: e 1ike,y1se t.ook note of the "greater fJexibility inpl'ici:!lf: enjoyed by the m.llti- proc1uet flnn *

, ,

which is in competi-tion \yith a smal1 firm s single procluct.:' \Vhile the Brown Shoe casein its retail aspect, involvec1 a horizontal acquisition , the ba.sis of

the Court's t1eci::iion Y, ilS not. so much the "sma.n share or a par-

ticular market" '.yhich the combination would control , as it ,yas t.hefact that " this sllfl'e is he.ld by a. large national chain .

. .

, (whichJcan insulate se-lected outlets from t.he vagaries 01 competition in par-ticular locations" (at 34 1). The following statement in Reynolds

662 FEDERAL TRADE CO fMISSION DECISIONS

Conclusions 67 F.

Metals 00. v. 309 F. 2d 223 , 229 (CA DC, 1962), although

relating to a vertical acquisition, also has application tD product

or mrtrket.extension acquisitions:Arrow s assimilation into Reynolds ' enormous capital structure and resources

gave Arrow an immediate advantag-e over its competitors

'" .. .;

. The power ofthe " deep pocket" or " rich parent" II *' '" ill a competitive group \vere previouslyno company was very large and all were relatively small opened the possi-bilty and po'Wer to sell at prices approximating cost or helow and thus toundercut and ravage the less affuent competition.

24. Respondent contends that as a matter of law it does not possessmonopoly power the power to control prices or exclude com-petition , citing such cases as Standard Oil 00. v. 221 U.S. 1

and Amfl'ican Tobacco 00. v. 221 U.S. 106, arising undcr

Section :2 of the Sherma,n Act. However, as the Commission pointedout in its Foremost Dairies decision, Sherman Act tests are inap-plicable to Section 7 of the Clayton Act, which is intended to "copewith monopolistic tendencies in their incipiency and before they

attain Sherman Act proportions. S. v. Bethlehem Steel Oorp.168 F. Supp. 576. vV11ile it may be that respondent does not possessmonopoly power, there is no question as to its disparate cconomic

strength vis-a-vis the great bulk of its competitors.25. In 1950 respondent was the third ranking company in the

production of frozen desserts in the United States, with 3.5% ofproduction. V\Thile this figure does not seem inordinately high, itmust be noted that thero \Vore some 4 200 ice cream plants in theUnited States in 1950 , and that eight national companies accountedfor 35.0% of U.S. production. By 1957 these eight companies ac-counted for 39.2% of U.S. production and respondent's share haclincreased to 4.7%. In 1958 the eight largest companies accountedfor 48% of the value of ice cream shipments in the United States.vVith 1 171 companies which were primarily in the ice cream busi-ness , the average share of all remaining companies was .05%. Inthe fluid milk line respondent was the fourth ra,nking company in1958 , with 3.4% of the value of shipments. Eight national companiesaccounted for 31.0% of the value of fluid milk shipments. In termsof companies which were primarily in the fluid milk busine , the

top eight companies accounted for 29% of the value of shipmentsin the Pnitec1 State , ,yith the l'cmttinc1er of the 5.008 cOlnpanie:-

having an average share of .001 %. In addition to its product andgeographic diversification in the dairy products field, respondent

enjoyed further diversification in the food industry, with at least30% of its sales in non-dairy products. During the decade from

BEATRICE FOODS COMPA 663

473 Conclusions

1950 to 1960 respondent's sales increased by 116%. During the sameperiod the number of milk plants decreased by 550/0 and the numberof ice cream plants by 23%. .While a substantial part of the declinein dairy plants has been due to technological conditions, there isno question but that keen competitive conditions and low profitmargins have been significant factors. In this milieu the large na-tional companies clearly possess the advantage. They have beenthc chief beneficiaries of the decision on the part of many of thesmaller companies to give up the competitive struggle by sellingout to the larger companies. The four largest national companies

:National Dairy, Borden , Foremost and respondent have been re-sponsible for a major portion of these acquisitions.

B. Creameries of America, Inc.

1. As has heretofore been found , Creameries distributed dairy

products in an area of the western United States between the ",est-ern slope of the Rockies and California. It also distributed in thethen Territory of Hawaii. Creameries and respondent competed

only in the State of California, which accounted for 26% of Cream-eries ' sales. The acquisition , therefore , involved principally a marketext.ension by respondent. Detailed fidings have becn made con-cerning market and competitive conditions in each of the marketareas where Creameries did business. However, any eva1uation ofthe impact of the acquisition must be made against the backgroundof Creameries' and respondent's over-all positions, and the trends

in concentration in the United States and the western portion thereof.2. Creameries was one of the three largest dairy companies oper-

ating exclusively west of the Hockies , its annual sales of approxi-mately $50 000 000 being almost one-quarter of respondent's ownsales at the time. Despite the fact that its San Jose and Los Angelesdivisions had sustained smalJ losses just prior to the acquisition , thecompany s over-all operation was profitable. Its profit rate in 1952was comparable to respondent's. There is no question but that itwas a substa,ntial and viable company. As the Commission stateelin the Foremost Dairies case ,"lth respect to the acquisition of

Cr8ameries largest California competitol', Golden State (at p. 1077),

respondent eliminated precisely that firm which had the financialand other resources to offer it the greatest potential , as Vlell as im-mediate, competition.

3. At the time of the Creameries acquisition , respondent rankedahead of Foremost Dairies , as the third largest dairy company in

664 FEDBRAL TRADE CO\DnSSION DECISIONS

lClusions G7 F.

the United States. F' rom a small \Iichye,ste,l'n beginning, respondenthad cxpanded (largely by acquisition) until by 1950 its territoryexiendcd from the eastern United States to the eastern slope of theoeky iUonntains. Except for a portion of California , \vhieh it had

entered by acquisition in the middle 1940' , it did not have any sub-stantial business west of the R,Qckies. The acquisition of Orcnm-erie,s offered re.spondent an opportunity to diversify its operationsgeographica.lly, by expanding into new areas at a cost .lower than,yould be involycd if it sought to develop new business in theseareas. It also offercd respondent an opportunity to enjoy the fullbenefits of it.s national advertising prog-ram, at a minimum achE.tional cost.

4. The most obvious potential impact on competition of respond-

ent' s acquisition of Creameries ' as in the 10\\81' Bay area , in \\hichrespondent and Creameries ' S Ln Jose division both eompeted in thesale of ice eream and other frozen desserts. Both campa-niB:: werBsubstantial factors in the ice cream product Ene in this area. '\Vhilethe figures in the record are not precisBj it is clear that respondent8.ceountec1 for somewhere between 20 to 30% of the iee cream soldin this market, and Creameries aecounted for bebvcen 13 to IG%.

Their combined market sha.ro represented bet"ocn one- third and t\\o-11ftlIS of the market, and gave them the largest share of any com-pany in tIle area. Together with two other national companies (Bor-den and Carnation) and one large, California.-based company(Golden State), they accounted for around 85% of the al' s ice

el'cam sales. \Vithin a short time after the Creameries acquisition

Foremost Dairies acquired G01clen State, and Borden acquired twoother independent ice cream ma.nnfactnrel's in the 101101' Ba.y area.

Thu , ",,,ithiD a period of Jess than a year the Dumber of non-llationalindependent ice ere-run manufacturers doing business hi the 10llerBay area 'ras reduced by nJmost one-half, from nine to Eve. Thennmber of inc1epe,nc1ents "hich ,,,ere in business in 1953, whenCrcmncl'ies ",yas acquh' ec1 lias itse.lf a reduction from the numberwhieh had prcwiou.sly sold in the territory, Borden having acquiredb'Co sizeable independents in 1951 , and respondent having initjallyEmtr.l'pc1 the territory by the ,l,cquisition of a.n jnc1epenc1ent. RespoJld-cllfs acqnisit10n of Creameries not only involved the acquisitionof i llb t.n.ntial competitor in the iee ere,am product lino, but en-

abled it to diversify its product line in thG lower Bay a.rca, since

Creameries vas :1180 a subst.a.ntial distributor of fluid milk. It olso

:\1 Crpnme:' jes W"S pnrticl11al'ly strong in the "Jlontc::ey-Snnia CJ' :IZ mi1k mnrket. ,'.iih(1\' 1'1' 28 /o of tile Clrea s s .les , Clno. wa\- a sizeable factor in the Santa C!flla warket wi(::

most 10% of th.'lt m"l'J,et.

BEATHrCE FOODS CO:\IPANY 665

473 Conclusions

resulted in a sizeable concentration of the fluid milk business amongthe national companies.143 llaving obtained entry into the fluid milkline through its acquisition of Creameries , respondent in the follow-ing year acquired t1\'O other independent milk companies in thelower Bay area. Based on the record I1S a whole , including the de-tailed findings heretofore made with respect to the lower Bay areaand the facts hereinabove discussed, it is concluded that the effectof respondenVs acquisition of Creameries of America may be sub-stantially to lessen competition, or to tend to create a monopolyin the ice cream and Huid Inilk product lines in the lower Bay area.

5. Since the law is vioInteel "if anticompetitivc effects of a mergerare probable in :any ' significant market , the mel'ger- flt least to thatextent-is proscribed. BTown Shoe Co. v. 370 U. S. 294 , 337;see also Bl'illo JfanufactuTing 00. Docket Xo. G557, July 31 , 1963.

It is , accordingly, unnecessnry to determine \fhcther the Creameriesa.cquisition had the proscribed statutory eiIect in eaeh of the otheTareas in which that company did business. IIO\\ ever, to t.he extentthat the anticompetitiyc implications of the merger in other areas

may havc a bearing on the relief to be ordered. (Ero' wn Shoe 00. , ibid. (5), brief reference i\'ill be 11:1(11" to the anticompetitive

aspects of the merger in the other flreas in hich Creameries op-

erated.6. A.s hf1s 2-1reac1y been found,: respondent and Creameries were

bot.h substantial factors in the ice cream product line in the lowerSan Joaquin ValJey area. Creameries accounted for almost 23%of the ice cream sold in the ICern-Tulare portion of that area , whilerespondent accounted for one-third of the ke cream srdes in the.Fresno portion of the area. Their combined sales represented over25% of the ice ere,am 30ld in the lower San .Joaquin Yalley. If re-spondent and Creameries cannot be considered as actual competitorsin the lo\Ver San Joaquin Vfllley, they \fere certainly potential C011-

pe6tor3. V\Tith over ludf of the companies i'\hich sold in Creameriesterritory operating from plants in Fresno it \fftS just a matter oftime before respondent would also have extended its operations southinto I(ern-Tulare. In acquiring Creameries, respondent not only

acquired a substantial potentia) competitor in the ice cream productline , but \Vas able to obta.in the benei1ts of di\"ersification of its prod-uct line in the lower San J oaernin Valley. "iVhile respondent hadpreviously distributed only ice c,ream in the l.rca, Creamerie.:; \ynsone of the 1argest factors in the fluid milk product line , accounting

Three Jlation l companies, pI!;" Go cJen State , 'W()l:d account for oycr 70% of !1:1I;sflles ill thp. five pl'incip:11 cities in the are,!.

379- ;02--71--3

666 FEDERAL TR.ADE COMMISSION DECISIONS

onelnsiml.'; 67 F.

for oyer one-fourth of the aren s milk sales, and was the third rank-ing milk company in the entire San oaql1in Valley (although it

only sold in t1\'O out of seven counties in the Va.lley).7. In the Los Angeles area , in ,vhich Creameries and responc1ent

competed in both the fluid milk and ice cre"m prodllct lines, theacquisition enabled respondent to achieve various economies by con-solidating the plant.s of both companies in the area. Its most sig-nificant effect was in the, frozen dairy product line. , where the mergerresulted in a company "hieh accounted for almost 7112 of the frozendairy products sold in the Los Angeles a1'8a.143 Since the top foul'

companies in the Los Angeles "rea (out of a total of almost 200

distributors, large and small) accounted for 32% of the marketthe merger ena,bled respondent to achieve a position comparableto the average share of the top four companies. The merger re-sulted in five COJnpallteS controlling almost 40% of the ice cre,sold in the Los Angeles area. ,Vith ForcmosVs acquisition of GoldcnState, which ,yas one of the top four companies, all but one of thefive leading compa,nies ,yere national companies.

8. The acquisition of Creameries ' Cftlifornia divisions must beviewed against an industry background which saw the number ofmilk plants in the State of California decline by 38% bet\yeen UJ50and 1961 , and the number of ice cream plants decline by 17%. Dur-ing this period at least 25 dairy companies were acquired by fivenational companies. The ac.quisition also took pIa,cc in a periodwhich saw the St.ate production share of frozen desserts accountedfor by the l1:ltiona.l companies :increase from 35.1 % in 1950 to54. 990 in 1957. ,Vhi10 a large part of this :increase was the resultof Foremost's acquisition of Golden State" respondent's acquisitionof Creameries played fl pnrt 1n the :increase in c.oncentration , withresponclenVs share increasing from 4.2% in 1950 to 7.4% :in 1957making it the third ranking national company in the State. Re-spondent' s o\Yll position :in the frozen product line has 1urtherimproved since 1957

, ,,-

ith :its share of California production reach-ing 9.4% in 1960. Thus in a period of ten years , its share of frozcndessert production morc than doubled. A considerable portion ofthis was made possible by its acquisition of Creameries. The post-

Jj3 The examIner has illclncled in l' espondent' s share of the market , the ice cream whichit produ('ed for Jersey DIain under the special arrangement with that company. ThisYolumc was prodt ced in resIJondent's plant, and there js no reason to beLieve thllt re-spondent did not receive R profit on such sales comparable to the other ice cream pro-

duced b:v it, Its production for Jersey Maid gave respomlent the benefit of larg-c-scaJeproduction, which presumably ",as ref1ected in the cost of the otber ile cream pro-duced by It.

BEATRICE FOODS COMPA 667

473 l.o)1eJw,dotJ"

acquisition developments in the fluid milk line (upon which respond-ent places emphasis), such as the dec.ine in the market share of

the top four companies and the increa,se in the market share ofthe largest independents , do not negate the anticornpetitive aspectsof the acquisition in the frozen produc.t line in the, State of Cali-fornia, let alone its antieompetitivc aspects in individua.l marketareas within the State.

9. .While respondent did not compete with the other Creameriesdivisions, there is no reason to believe that in clue 6me it would nothave expanded its operations into at least some of the other aTca:=.

R.espondent cites the mountainous terra,i.n in the Rocky J\lount.ainarea , as indicative of the lack of likelihood that it would have ex-panded into the \1'estern sJope of t11e Hockies , from its Denver plant.Yet the record discloses that there \Tere at lea,st two other com-panies serving communities in we tern Colorado with frozen dairyproducts from plants in Denver (CX 16-Z 252, Pl'. 81 , 83). Givenrespondent' s growth pattern , it was inevitable that, had the oppor-tunity for acquiring Creameries not presented itself, it would haveexpanded into the Intermountain area , either directly or by theacquisition of one or more sman companies which would have be-come its base of operations in the area. It was alrcady poised on

the perimeter of the area, with bases of operations in California

Denver and OkJahoma.

10. Aside from the aspect of affecting potential competition inthe ftrea.s ""where respondent and CrcflJncl'ies did not compete , the

merger had other anti competitive implications in these areas. Re-spondent s acquisition of Creameries resulted in the elimination ofa strong, independent company, which was a very substantial factorin the Intermountain area. In the Utah divisional area Creameriesaccounted for almost 20% of sales in both the milk and ice creamprOLluct lines , and in some markets within the a.rea its market sharewas even greater. In the Idaho divisional area Creameries accountedfor over 30% of ice cream sales , although it was not as strong in thefluid milk line as in the Utah area. .With the exception of the twosubsidiaries of Pet Mi1k , which sold in only a portion of Utah andwhich eventual1y left the area , there were no strong national com-panies in the UtnJI-Idal1O region. Respondent's acquisition of Cream-eries resulted in the injection into the area of a national companywith economic power and leverage far beyond Creameries . In the

area served by its El Paso Division , Creameries was the largest, ifnot the domi,;ant , foetor in the area , w.ith almost 50% of both milkand ice crea.m sales , and even larger shn.res in some individual mar-

668 FEDBRAL 'TRADE CO IMISSION DECISIO

Conclusions GT F.

kets. Respondent s entry into this area resulted in a substilntialincrease in the concentration of business among the national com.panics. Thus, in the El Paso market respondent (as Creameriessuccessor) and Borden accounted for 73% of the area s ice cream

sales.11. Respondent's acquisition of Creameries pa.ved the way for its

8cgllisition of two other companies serving portions of the Inter-mountain area, and for a later extension of its operations into ad-joining areas in Texas and Arizona by the acquisition of two largeindependent companies in those areas. As a result of its programof expansion through acquisition respondent, which did not do busi-ness in the Intermounta,in area prior to 1953, was able by 1960 to

increase its market share in the portions or the six-state area servedby the r:cql1ired companies to 23% in the frOZe!l dessert 1in2 andapproximately 21 % in the fluid milk line. During the decade frorn1951 to 1961 the number of milk plants in the Mountain State.3 de-0. 1ined from 748 to 348 , and the number of ie.e. cream plant.3 from2GD to 216.

12, In the area served by :its Honolulu Division , Creameries wasc1ear1y the dominant company, in both the milk and ice cream prod-uct Jines , with approximately 60% of the milk sales and 500/ of the

ice cream sales on the Island of Oahu, and two-thirds of the ice

cream sales on the Island of I-Tawaii. Through it.s cont.ract "\vit.h the.local producers association and its own dairy farm , Creameries wasin a strong position to control the supply of raw mille Respondent'sinjection into this market bronght an evcn stronger and more power-ful conlJwtitol' into tlw arra, to face the Tc1ativeJy fe\\T local com-pfUlies. ,Yithin a matter or months n,fter respondent's acquisition ofCreameries: the Jargest of Creameries : local competitors '\\' e1'e ac-quired by Foremost , which had there;t:ofore owned one relatiyelysmall company. Thus, in fI short time the ;1,cqnisitions of re ponc1('ntand Foremost had transformed a dl1iry industry consisting or localor independent companies into one -in which these two nationn 1companies accounted for 85% of the milk business and 75% ofthe ice cream businpss in Oahu. ,Vit.hin a year after its acqnisition

of Creameries , respondent acquired the only indepenclent ice creflJncompany doing bl1sine s on the Island of I-Ia,waiL thns completing:the cycle of control of the dairy industry in the Territory of Hawaiiby national companies.

13. Respondent suggests that the Creameries ac.quisition cannot bedeemed to have anticompetitive implications in the a.reas \yh8r8 the.two companies were not in competition , since respondent merely " 1'8-

BEATRICE FOODS COMPANY 669

47; Conclusions

p1nce,cF anot.her company in t.hof:e areas ( femorandllm, p. 9). Itcites in support of its position the staiement in Crown ZellerbachOorp. v. FTO 296 F. 2d 800, 818 , in which the court , referring tothe fact that the acquired and acquiring companies did not competein certain ,Vestern States, stated:

('iVJe are confronted with great c1HIkulty in understanding 110IY the acquisitionof St. Helens could operate sl1bsumtia1ly to lessen comvetition in tllOse arpos

\YlJpl'e it apparently did no business hefore the acquisition.

ThE\ fJuoted statement wa,s made in connect.ion with a discussionconcerning the delineation of the relevant geographic market , ratherthan the c.riteria app1icable to determining the competitive impactof an acquisition betYreen noncompeting companies. Furthermorethe area, in ,yhich the C01P't thought there could be no Hclverse impact

,yas aIle in which the acqui.ring company sold : but not the acquired

company, whereas here the area invoh'et1 is one- in which the ac-quired compa.ny did operate. The exarniner does not interpret theCilse as holding th lt there can be no adverse competitive effect ifthe acquiring company did not se1J in the same ma,rkct as the acquiredcompany. To so interpret it would be contrary to the clear con-gressiona.l intent to extend Section 7 to acquisitions other than thosewhich are horizontal in nature.

tL Even if t118 an6competitive aspects of the Creameries acqui-sition '\\ere deemed to be limited to one or more of the Californiaareas where the two companies directly competed , a.ny attempt toevaluate the impact of the acquisition ::olely in terms of those areaswould be to ignore the principal benefit.s which rep,ponclent receivedfrom the ac.ql1isition. As has previollsl:v been noted (SllPdl p. Sil)),while respondent visualized that the California portion of Crcmrn-

eries' lmsinc,ss would give it "an opportunity to possib)y improveanI' profits in those areas :' by consoliaation of the two operationsit was genera11y dubious about the advanta,gcs to be gained fromthat portion of the. bnsine::s ;; (lue to the highly (' onlpftitivp sItuationand smaller margins in both milk and ice cream in California,The m;ljor al1Y,lltap:e '\"hi('11 it sa.w jn the nrqlli ih()n \Y;' the "oppor-t.unity lor anI' company to go into ne\\ flrea , which arc grO\ying areaswith I1njor operations, at a price lower than we eould ever developbusiness in these areas. :' The areas referred to were " particu1arly* :/ * Texas , :New 3Iexico, Utah ana Idaho." ,Vith the exce,ptionof BakersfIeld , Creameries was losing money in California, whileoperating at a substantial profit in the other di\Tlsional areas. 1Vere1-he order in this l)l' ocecdin to lw limile(l to cli\'c:4itnre of tllO"-('

portions of Cl'c;unrries : lmsine

:: \\

hich \\"cJ'e in cnmpetltion ,,,ith

670 FEDERAL TRADE COlvDfISSIO:" DECISIQKS

Conclusions 07 F.

respondent, the latter would be permitted to retain the principalfruits of the acquisition, while ridding itself of those portions of

the business of which it might \yell wish to unburden itself. Anyonepurchasing the California portion of the business \,-uld obtain a

shell of the Creameries operation , lacking in the suhstantia.l gcographic c1iversificlltion and economic Jeverage of the original com-pany.

C. Boswell Dairies

1. Boswell is one of the acquired companies with rcspect. to whichrespondent contends the 1'8co1'1 fails to establish engagement incommerce. The only evidence of Boswell' s engagement in commerceis that during the 12-month period prior to its acquisition by responc1ent , it purchased some butter and cottage cheese curd froma company in Springfield Iissouri , whic.h delivered same in itsown trucks to Bos"\,\cll's plant in Fort \Vorth , Texas. The volume ofsnch out-of-state pnl'chases , and the degree of regularity thereofduring the 12-mont11 period , do not appear from the record. Bos"\"\e11 was a company ,yhose annua,l sales ,vere in excess of $7 000 000,

There is nothing to inclicfltc t.hat BoswelFs out-ai-st.ate purchaseswere of 1nor8 than de 'In-inhnis; proportioll . It is the conclusion of

the examiner that the minimal showing made by complaint counselis not suffcient to establish that, at thc time of its acquisition , Bos-well ,vas engaged in comlnerce , within the meaning of the ClaytonAct and FedeTal Trade Commission Act.

2. In vie\\' of the foregoing conclusion , it is technically unnecessaryto determine "\ylwther the Roswell acquisition had the proscribedcompetitin.: impact. However, .since the Commission 11fl.Y disagrec

'1'jth the examiner s conclnsioJls RS to Bos"\yell's cngagemerJt in ('Oln-meTCS and may desire the bene,fit of his views concerning the com-

pet.itive impact of t.he aCf1lli:"ition , the eXAminer ,"rill briefly in(licntohis eoncll1sions :in this regard.

3. The record discloses thflt Boswell was a subst.antial and viabJeimlcpenclent company, with total sales in 1957 in excess of $7 000 000

consistinp; of l1ilk iee cream and other dairy products. \Vhilo itsma.in distribution area was in the cjty of Fort 1Vorth and surround-ing Tarrant County, eomp1aint counsel contend that the Korth

Tcxas V:\OIO area is the relevant market area. Boswell's share of

this market '\1'ea in fluid milk was 10.63% in 1957. However, this

does not accnrfltely reflect Bos\\ cl1' s market position in fluid milksince its r1istribution aren included 12 counties which were not inthe Korth Tcxas FMMO area , and the FMJ\O arca inc1nded 10

BEATRICE FOODS CQI\lPAl'Y 671

473 Conclusions

counties in "\vhich Boswell did not do business. The record containsno data as to Boswell's market position in the ice cream product

line. Respondent did not compete with Bos"Iell in the sale of dairyproducts , its closest plants being at El Paso aud Oklahoma City.4. Based on the record as a whole, and particularly the Jack of

reliable evidence as to Boswell's market position prior to the acqui-sition , it is the conclusion of the examiner that complaint cOllnselhave failed to sustain the burden of pl'oving that the effect of re-spondent' s acquisition of Boswell may be substantially to lessen com-petition , or to tend to create a monopoly, in any product line in anysection of the country.

D. Associated Dairy Products Company

1. Associated is another of the acquired companies with respectto which respondent conte,nds the record fails to establish engage-ment in commerce. The only evidence of Associated's engagementin commerce is that during the 12-month period preceding its acqui-sit.ion , it purchased butter and plastic cream from a, company in LosAngeles and that "some or all of said products may have originatedin states other than Arizona" (emphasis supplied). There is nothingin the record to indicate the volume or degree of regularity of pur-chases actually originating from outside the state. It is concludedthat the minimal shmving made by complaint counsel js not suff-cient to establish that, at the time of its acquisition by respondent

Associated ,Y1:S engaged in commerc.e, ,dthin the meaning of theChtyt.on Act and the l, deral Trade Commission Act.2. In view of the foregoing conclusion , it is technically unneces-

sary to determine whether respondent's acquisition of Associated

had the proscribed adverse competitive impact. However, since theCommission may disagree with the examiner s conclusions as to ASMsocia ted' s engagement in commerce, and ma.y desire the benefit ofhis views coneerning the probable impact of the acquisition , the ex-aminer "\111 briefly indicate his conclusions in this regard.

3. The record discloses that Assoeiatec1 was one of the largest , ifnot the largest., jndepenc1ent dairy in Arizona , with sales of approxi-mately $J OOO OOO , consisting principaJ1y of fluid milk and relatedproducts. It ,vas acquired in October 1956 for a consideration of

almost three quarters of a million dollars. It was a profitable and

viab1c compauy. It has been found that both the State of Arizona

and the Central Arizona FMl\0 area are appropriate market areas.In the State of Arizona as a whole , Associated accounted for 11.22%

672 FEDERAL TRADE CQM:MISSIO:- DECISIO

Conclusions 67 F.

of fluid milk sales in 1955. It is probable that its market share was

even higher in the Central FJlMO area , which included the prin-cipal communities in which Associated distributed. 'While respond-ent and Associated 'were not yet in competition , the perimeters oftheir respective territories coil1cic1ed. laving extended its oper-ations into west Texas and New 1\Iexico through its acquisition ofCreameries, it Ylas inevitable that respondent 'would expand intoArizona. In 1958 byo national companies, Ca.rnation and Bordenaccounted for 58. 6% of the valuc of fluid milk shipments in Arizona.There is no reason to believe that their share was substantiallylower in October 1956 , when respondent acquired Associated. ,Vithrespondent succeeding to Associatecrs business, three national com-panies accounted for 67.6% of the value of fluid milk shipments inArizona in 1958. In the decade from 1951 to 1961 , the number ofmilk plants in Arizona de.eined from 78 to 25 , and five clair;)' com-panies were acquire.d by national companies.

4. Bfl::ed on the record as a 'whole, including the Bvidencc as tothe high degree or concentration in the, milk industry in Arizonaamong the national cOl1panie , the substantial decline in the numberof smu11 , independent plants and companies the snbstantial position

\"hich Associated occupied ,,,ithin the Stftte of Arizona, and theclose. proximity lJe(,yeen it,s and responc1ent:s respective territoriesit is the conc.usion of the examiner that the extcns10n of respond-ent' s operations into Arizona by the acquisition of Associated , \"D.S

reasonably calcnIatcel to injure competition in that section of thecountry nnd to tend to monopoly. In reaching this conclusion , the

examincT is not unminc1fuJ of the :fact , emphasized by respondentthat by 19(0 its market share in Arizona had declined by 2. 8%.Such post-acquisition development is not of sueh magnitude orcharacter as to negate the foregoing conclusion.

E. Greenbrier Doiry Products Company

1. Greenbrier is another of the acquired companies ,, ith respect

to which respondent contends the record fails to establish engage-ment in commerce. The record discloses that during the year priorto its acquisition by l'E'sponclent , Greenbrier made pUl'Chfl5es of el'E'O-11m11k pmnler and dr ' cheese curd from v trious out-of-st.ate sup-

:.. WhHc Ao;sociated' s pl:mt , j\J t outside of Phoenix, was approxim!1tely 400 ml;c"

from re pondeDt' o; main p:a:rt at El P2S0. it had a branch offce at EIr;l1ee from \';hich itdistrihuted in Cochise Con:rt . li) Ol1tbp:lstern Arizona adjacent to the "Xcw :\Iexico sta1eEne. Rcs)JoD(lent bar! a hr:mch at Deming in o;ol1th'Western Kew :lIn;co. from which 1t

striblJted in HhIr1Jgn Ilnd Grant COL;!)ties bordering on .\rlzona.

BEATRICE FOODS COj\lPA 673

Conclusions

pliers, )n t.he total amount or $115 190. These products were usedas ingredients in tIle manufacture of varlous dairy products soldhy Greenbrier in Vest Virginia. It is concluded that the vo1ume orGreenbrier s out-of-state purchases is suffcient to establish that, atthe time of its acqui:iition by respondent on January 1 , 1955 , Green-bricr "\YflS engaged in commerce, as "commerce : is denned in theChvton Act and the :Federal Trade Commission Act.

Greenbrier, whose sales of milk, ice crcam and other dariy prod-ucts , were approximately $3 775 000 in 1953 , \,as ncqllirecl for a totalconsideration in excess of 81 2.00/JOO. Hespondent concedes thatGreenbrier was " a viabJc independent , . ':' '" with modern processingequipment. :' Greenbrier s sales "'ere made principally in the areaof Cha.rleston , Bee-kley and Logan , in I\"hich respondent did not dis-t.ribute However, it a.lso sold in the area of Lewisburg where re-spondent cOJl1peted with it in the frozen-prodnct line. It has beenfound that the Charleston area and the Charleston-Beckley-LoganarCQ are. approprinte market areas. In the Charleston area Greenbrie,accounted fOl' approximately 15% of milk sales, and in the largerCharieston-Beckley area its market share Iyas substantially larger.Vhile the recOl'd does not disclose tl18 extent of concentration

Greenbrjer s distribution area , in the larger Charleston-Becklcy-Bluefielc1 area, Greenbrier and t\yO mt.tional companies accountedfor BO.7% of the milk snJes in 1951. --\Jthough fonI' large independentcompRnies ar:countecl for 48.20/0 of the are,l s milk ales, two of these."ere: later acquired by an outside company. Greenurier repreEentec1the first important acquisition made by respondent in ,Vest Vir-ginia. Following this it acquired five other dairy compa.nies in theState. By 1958 respondent had bec.ome the first ranking milk com-pany in ,Vest Virginia

, '

with 11.8% of the ndne of shipments offluid milk (not including the Sh8XC obtained from fl. large companyacquired in 1959). During the decade from 1050 t.o 1860 , the numberof milk plants in ,Vest Virginia declined from 149 to 66, and 10dairy companies were acquired by nationa.l companies. Based onthe record as a \vhole, including Greenbrier s substantial marketposition , the fact that respondent as already competing with Green-brier in the frozen dairy product line, the extent of and trend towardconcentration in the market , and respondenfs acqEisition pattern int.he State , it is conduded that the effect of respondent's acquisitionof Greenbrier may be substantially to lessen competition or to tendto monopoly in the fluicl milk proc1nct line in sout.hern and central,Vest Vi:'p.jllia.

674 FEDERAL TRADE COl\IMISSION DECISIONS

Conclusions G7 F.T.

F. Clarksbnrg- Dairy Company

1. Clarksbmg- is another of the acquired companies with respectto which respondent contBnds the record fails to establish engag-e-ment in commerce. The only evidence of Clarksbnrg- Dairy's engage-ment in commerce is that it purchased 801118 a.erated cream and

butter from two out-of-state suppliers. The butter pnrchases neverexceeded three or four cases per week (the dollar volume thereofnot appearing), and the volume of aerated cream was "very smaH.

It is the conclusion of the examiner that the evidence is insuffcientto establish that , at the time of its acquisition , Clarksbnrg Dairy wasengaged in commerce , within the meaning of the Clayton Act andthe Federal Trade Commission Act.

2. In view of the foregoing conclusion, it is technically unneces-sary to determine whethe-r the Clarksburg acquisition had the pro-

scribed competitive impact. IImycver, in the event the Commissionshould disagree with the examiner s conclusions as to Clarksburgengagement in commerce an(l should desire the benefit of his viewsconcerning the competitive impact of tl1e acquisition , the examiner

will briefly indicate his conc.usions in this regard.3. Clarksburg Dairy and its ",\ho11y o1\ned subsidiary 1-Iomo Df1iry

were acquired in August 1935, seven months aftrT the GreenbrierDairy acquisition. The recorcl discloses that Clal'ksburg Df1iry ,,-n substantial and viable independent compm1Y with total sales of

635 OOO. It accounte(l for approximately 35% of the milk salesin the northern ,Vest Virg' inill area in which it distributed , and ",\"as

the largest distributor in the market. Respondent , throngh its nc",ylyacquired Greenbrier 1)ivision. eompetec1 ,,-itll Clarksburg in a smflll\\ay. ,VitII respondent s acquisit.ion of Clarksbnrg. it and FairmontFoods accounted for approximately 600/0 of the area s milk saJes.

one of the remaining companies ho,(1 more than o/c of the mar-

ket. Fo1Jowing its acquisition of nnother large clair T in 1959, re-

spondent' s share of fluid milk sales in the no:tthern ,Yest Virginin,are,n, reached 4- 8% of the area s snlcs by 1950. As previously men-tioned even prior to the last acquisition respondent had becomethe Jargest factor in the milk business in the State of IV est Vir-

Q:inia. ",:ith 11.8% of the YflIne of flnid milk shipments in 1958. Thisposition resu lteel principalJy from its acquisition of Clarksburg andGreenbrier.

4. Based on the record as a whole , inc1uc1ing C1arksburg s substan-tial market position , tJ1C fact that re,sponcJent was already com-peting ","'lth it , the extent of and tnm(l to"\arc1 concentration in the

BEATRICE FOODS COMPAXY 675

473 Conclusion;,

market, and respondent' s aequisition pattern in the State, it is con-cluded that the effect of respondent's acquisition of Clarksburg- andits subsidiary Home Dairy may be substantially to lessen compe-tition , or to tend to create a monopoly in the fluid milk product linein the northern \Vest Virginia area.

Tro Fe Dairy Company, Inc.

1. There is no issue ra.ised concerning the engagement in com-merce of Tro-Fe Dairy, which obtained all of its supply of rawmilk from its wholly O\yned subsidiary in Tennessee. Respondentconcedes, and the examiner concludes , that Tro-Fe \\as engaged incommerce , within the meaning of the Clayton .Act and the FederalTrade Commission Act.

2. At the time of its acquisition in June 1956 , Tro-Fe ,vas a sub-stantial , villble company, with net sales of approximately $3 000 000of ,,-hich approximately 73% consisted of fluid milk. It has hereto-fore been l'ound that the Gadsden

.'\_

llnistoll area is the relevantmarket area. The record contains no reliable statistical evidence asto Tra- Fe s market share or the extent of concentration in thismarket area. At the time of the acquisition , respondent sold fiuic1milk in the adjoining market in northern Ala,bama, and competedwith Tro-Fe 1n a small aI'ea where the two markets overlapped.The record does not disclose responc1eDt:s ma.rket position in thearea "' here it distributed. It does appear that two years after theTro-Fe acquisition re,sponc1ent acc.ountecl for 14.6% of the value offluid milk: shipments in the State of Alabama as a 'Ivhole. 11owevp, 1',

tJwTe 18 no ,yay of c1etermin1ng how rnueh of this share is attrib-utable to the Tro-Fe aequisition.

3. In view of the lack of reliable evidcJlcc as to Tro- s markf'tposition and the extent of conce,ntration in the, Gadsden-Annistonmarket. , as well as the lack of evidence as to respondenCs pre-acqui-sition position in any appropriate mrtrket , it is concluded that com-plaint counsel have failed to sustain the burden of proving that theeiIect of respondent' s acquisiUon of Tro-Fe Dairy ma,y be substan-tially to lessen compctitiol1 or to tend to create a monopoJy in anyline of commerce m any section of the country.

Dothan Ice Crellm Company

1. There is 110 issue raised concerning the engagement in com-merce of Dothan Ice Cream Company and it.s affEatec1 distribut.ingcampa,nies. Respondent concede, , an(1 the exnmiller concluc1es that

G76 FEDEHAL 'TRADE CC)::I,DHSSIOX DECISIONS

Conclusions 07 F.T.C.

Dothan and its affliated companies Iyere engaged in c.ommel'C8 with-

in the meaning of the Clayton Act and the Federal Trade Com-

mi.c:sion Act.2. At the bms of their acquisition in December 1859 , Dothan and

its affliated distributing companies were a group of sl bstantialviable compallies , ,,,ith tota J frozen product sales of over $:3 000 000.

Fl'nm its pbnt flt. Dothan hbarna, Dot,han clistl'ibntecl frozenprorlucts through its affliated COll, panics in various portions of

southeast.crll ..AJabama , soutIlIvestern Georgia and northwestern Flor-ida. B.cspondent distribut.ed frozen products in northern Alabamafrom its plant in K ashviUe : Tennessee. It did not compete \Tith t.he

Dot.mn cOlnpal1ies. The record cloes not contalE suffcient el'ic1ence

from Iyhich an informed determination ilS to the. geog"l':lphic mar-ket area or areas relevnnt to the Dothan acquisition cnn be made.Even if the relevant, market were assumed to be. the clist.l'butlng areaof Dothan and its subsidinry companies: as contended by connsupporting the complaint, the Tceord is lacking in eviclence conC8rn-ing Dothan s market share and the extent of concentl'(1.tion ill thisarea. In a multi-state area. encompassing the comGinec1 territoriesof respondent and the Dothan cor.npanies , respondr"llt ncc011nt.cd forapproximat.ely 10.3% of frozen product prodllction in 1 D60. the

YPf1T follo .yin; its acquisition of Dothan. In te!'rns of the aren Iyhichthe Dothan companies had fonnerly served: l'espo11c1enfs pr0(1l1c-

1.1011 s11are in 19BO was approximately 1:.7%.3. In yjew of the ul1::.atisfactory state. of t.he record C0l1ee1'njng

what is the appropriate market area or aren2. and the Inek of t;1"denee n,s to responc1ent:s and Dothan s preacquisition market sharesrm(1 the estent of concentration in an flpproprinte rrmrket, it is con-

eluded tll2t complaint connsel 11fl\' C fnile-d to sllst.ain the burden orproving that t.he eired of l'espondent s aequisition of Dothan maybe substantial1y to Jessen competition: or to tend to create n monop-

oly in any line of commerce in any section of the country. Eve,aSSlll1.)ng that respollchmt:s and Dothan s c.ombined distribution area

or that DotlHln s distribution arE'fl. alone , is an appropriate marketno eonc111sion as to any adverse competitive impact can be made

merely frum the post-acquisition rnarket share figures alluded toabove.

I. Dairy1anc1 Fa.rms , Inc. rmc1 Va1t1air Cl'ean-:cry InC'.

1. There is 110 i suc raised eoncerning the engngement in eom

meree of Dairybnd and its affliated cOllpany, Valcbir. Respondent

BEATRICE FOODS COMPANY 677

473 Conclusions

concedes, and the examiner concludes , thi:lt Dairyland ana Valc1air\yere engaged in commerce, within the meaning of the Clayton Actand the Federal Trade Comrnission Act.

2. At the time of their acquisition in lI'lrch 1961 , Dairyland andVal clair were substantial, viable companies , wit.h comhined saksof approximately $:),500 000. They distributed milk pro duets andice cream in eastern Alabama and \\ estern Georgin. Hesponc1entcompeted \yith these companies in only a small portion of theirterritory, and only in the ice cream product line. The record doesnot contain suffcient evidence to permit a determination as to the

appropriate geogrftphic markets in either the 11111(1 milk or ice creamproduct lines. Even assuming that Dairyland' s and Valdair s respec-tive distribution areas could be considered to hr, the appropriatemarkets , the record does not contain any evidence as to their marketshares or the extent of concentration in these markets. The only

market-share data in the record pertains to the State of Alab,mmas it Vlhole , Ilnd indicates that in 195,g respondent ae-connted for1.1.6% of the value of fluid Inilk shipments in the State and thatfour national companies accounted for 33.4% of such shipmentsyith respondenfs share beillg' the, Jal'gest. It is not possible to de-termine Dairylanc1-Vnldair s market position in the fluid milk linein tho State as a \\'hole , slnee the 1'eeorc1 contains no breakclmyn ofits total sales as behyeen fluid milk pl'oc1ucts and ice cream.

3. While it seems likely from the amount of their total salesthat Dairyland and ValclfLtl' \\" ere sub:-tantia.l factors in their nUll'kets , in t.he absence of deunitivc evidence as to their mark t slwl'cS

and the extent of concentration in an nppropriate market, no con-clusion can be drawn that the efIect of their acquisition by respondont rna,y be substantially to lessen competition, or to tend to createa monopoly in any line of commerce in any section of the country.

J. Louis Sherry, Inc.

1. There is no issue raised concerning the engagement in com-merce of Louis Sherry. Re::pondent concedes , and the examincr con-dudes, that She.rry was engaged in commel' , within the meaningof the Clayton Act fI.nd the Federal Tracle Commission Act.

2. Sherry was a substantial \ viable company at the time of acqui-sition in March 1955 , with frozen products sales of over $3 000 000.J-Iowcver, it had sustained substantial losses on its operations dur-ing the two-year period prior to its acquisition. 1Vhile respondentfInd Sherry Vlere in competition in the sale of frozen products in

678 FlGDERAL TRADE CO;yrMISSI0 DECISIONS

Conclusions 67 F.

the New York metropolitan area, they sold different types of icecream and catered to different types of eustomers. The only marketshare data in the record is for 1952 , almost three years prior to theacquisition. Such data reveal that respondent and Sherry accountedfor '1. 7% and 40/0 respective1y, of the New York market , and were

the third and sixth ranking companies. The first two ranking com-

panies , Borden and National Dairy, accounted for 29.6% and 24. 5%,

respectively, of the area s sales.

L Considering rcspondent s relatively smaJl share of the NowYork market vis- vis the top two companies, the lack of current

market-share and concentration data. in the record, Shcrris poorprofit position at the time of the aequisition, and the limited extentof competition between it and respondent in terms of the types of

product and customer served , it is the conclusion of the examinerthat complaint counsel have failed to establish that the effect of re-spondent' s acquisition of Sherry may be substantially to lessen com-

petition , or to tend to create a monopoly in any line of commercein any section of the country.

K. Arden Farms Co. (Me1vcrn-Fussell Division)

1. There is no issue raised concerning the engagement in com-merce of the l\elvem-Fussell Division of Arden Farms. The recorddiscloses, and the examiner concludes, that l\1:elvern-Fussell was en-

gaged in commerce , within the meaning of the Clayton Act andthe Federal Trade Commission Act.

2. Arden s :Mclvern-FusseJ1 Division operated a substantial , viablefrozen products plant in the ,Vashington, D.C. metropolitan area

at the time of its acquisition by responrlent in 1960. However, theDivision ha.d lost money ea,eh year since Arden entered the marketin 1951. Respondent. and

IelYern- Fuss('ll competed in the s,lle

frozen products in the ,Vashington metropolitan area and in a broadarea of Virginia and ::Iaryland. Hespondent, while a substantial fac-tor in the 'Washington market , had been losing money on its 'Vash-ington operation for three years prior to its acquisition of .felYern-

Fussell. It was considering closing its ,Vashington plant due to thepoor physical condition thereof and the impracticality of renovating

it. The on1y market-share data in the record is for the year 1952approximately eight years prior to the acquisition. "Tl1le Bueh datareveal that they were both substantial factors in the 'Vashingtonmarket, there is other evidence indicating that the position of bothcompanies had deteriorated substantially prior to the acquisition.

BEATRICE FOODS CO:\fPA 679

4,3 Conclusions

The largest company in the area was ational Dairy, which ac-

counted for 43.6% of the value of shipments of frozen desserts inthe District of Columbia in 1958.

3. In view of the lack of current market-share and concentrationdata in the record, the poor financial condition of the Melvern-Fnssell operation, the lack of profitability of respondent's operationin the area , and the overwhelming market position of the largestcompany in the area , it is the conclusion of the examiner that complaint counsel have failed to establish that the effect of respondent'acquisition of the Melvern-Fussell Division of Arden Farms may besubstantially to lessen competition , or to tend to create a monopolyin any line of commerce in any section of the country.

L. Durham Dairy Products , Inc.

1. The record discloses that Durham received a portion of itsraw milk from Virginia , that it purchased other dairy products fromsuppliers in Virginia and Kentucky and that its sales territory in-cluded one town in Virginia. It is concluded that the record estRb-118hes Durhanl was engaged in con1111erce, within the meaning ofthe Clayton Act and the Federal Trade Commission Aet.

2. At the time of its acquisition in March 1953 , Durham was asubstantial processor and distributor of fluid milk products andice cream in a five- county area of orth Carolina. It was the second

ranking company in the fluid milk line, with 30.5% of the areasales, and was the top ranking company in the ice cream productline, with 25.4% of the area s sales. At the time of the acquisitionrespondent was not selling any dairy products in Durham s terri-tory. However, it did distribute frozen products in southern Vir-ginia from its plant at Norfolk. Durham s competitors in the fluidmilk line were prineipally local , independent companies. Howeverin the frozen product line National Dairy, Borden and Pet weresubstantial factors and , together, accounted for 31.1 % of the frozenproducts sold in the market. 'With respondent' s aequisition of Dur-ham, the four national companies would aCcoillt for over 55% ofthe frozen product sales in the market.

3. Based on the record as n. whole , including the substantial posi-tion which Dnrham oecupied in its market arm, in both the iluidmill, and frozen product lines , the close proximity of its and re-spondent' s territories in the frozen product line, the fact that the

acqnisition resuJted in the injection of (t st.rong national companyinto a flnid milk market which had theretofore eonsisted almost en-

680 FEDERAL TRADE COJ. nSSION DECISIONS

Conclusions or F.

tirely of local companies, and the substantial increase in concentra-tion among national companies in the frozen product line, it is con-

cluded that the effect of the acquisition of Durham Dltiry by respond-ent 111ay be substantially to lessen competition, or to tend to create

a monopoly in the fluid miD\: and frozen product lines in Durhamsales area.

i\.J \Vesterdlle Creamery Co. and Other Ohio Acquisitions

, 1. There is no issue raised concerning the engagement in com-merce of ,Vest-crville Creamery. Respondent concedes that \Vester-vi11e was engaged in commerce in the saIe of evaporated a.nd pow-dered milk products. It is concluded that ,y csterville was engagedin commerce, \'dthin the meaning of the Clayton Act and the Fed-eral Trade Commission Act.

2. ,Vesterville ""as a substantial producer of manufactured milkproducts, including eyaporatcc1 : condensed and pmvdered milk. Italso processed and sold fluid milk and ice ere a.m. Its total sales atthe time it was acquired in June 1861 were almost $14 000 000, of

,,,hich more than three- fourths s accounted for by its manufac-

tured 11ilk products. Prior to the acquisition respondent had notbeen a manufacturer of evaporat.ed and condensed milk products;nor had it distributed flui(l mille or ice cream in ,Vestervil1c s terri-

tory. The record reveals that V estcrvillc had about 8% of the fluidmilk sales in its tcrritory\ but theTe is no eyirlence as t.o its relativeposition or the extent of concent.ration in the market. The recordcontains no evidence as to market s11a.res or the extent of concentra-tion , in any appropriate m rk('t. in Bit,her the frozen product or 11an11-

factnrcd mi1k product lines. It is concluded that the record failsto establish that the effect of respondent's acquisition of ,Yesterville

Creamery ma r be substantially to lessen competition , or to tend tocreate a monopoly in any liDe of commerce in any section of thecountry.

3. Respondent acquired byo other Ohio corporations, ,vhich com-plaint counsel contend \reTC engaged in commerce. These were Lin-ton & Linton and Gray & Vhjte. The record fails to estab1ish thateither company was engaged in commerce. The mere fact that Lin-ton & Linton purchased some botted milk from respondent in Ohio

1\hich may have originated outside of the State in its rn formdoes not establish its engagement in commerce. The fact that Gray& ,Yhite ma,y have purchased some indeterminate amount of butterfrom outside of the State of Ohio is insuffcient to establish its en-

BEATRICE FOODS COMPA"" 681

473 Couclusions

gagemcnt in commerce. :iHorem- , the record is IfLcking in substa,

tial evidence that the effect of either of these acquisitions may besubstantially to lessen eompetition, or to tend to create R monopolyin any line of commerce in any section of the country. There isno market share or concentration data. in the record ,yjth respectto the Linton & Linton acquisition. The only chta pertaining- tothe Gray & Vhite acquisition is that its sales of butter amountedto approximately 5% of the buttcr consmnec1 in the northern Ohioarea.

. Lindner Ice Cream Company

1. There is no issue raised concerning the engflgcment in com-merce of Lindner Ice Cream Company. Respondent concedes ) R,

the examiner concludes, that at the tjme of its acquisition in June

1856 Linclncr vms engaged in commercE'" within the meaning of theClayton Act and the Federal Trade Commission Act.

2. Lindner was fl. moderate- 1zecl iC3 cremn company, sening the area of Cincinnati : Ohio) "it.h allnual sales of $4BO 000. Respond-ent. competed '''1th Lindner in the sale of ice cream in the Cincinnatimarket. The record is htcking in evidence as to the market sharesof the acquired and acquiring eompanics , and llS to the extent ofconcentration in the market.: at or about the time of the acquisition.

The only lnarket data. in the record are for a period four years priort.o the acquisition , at which time respondent and Lindner accountedfor approximately 8% and 5%, respectively) of t.he ice. c.ream sales

in Cincinnati. Respondent ,,-as then the fourth-rnnking company, thefirst ranking company being Nntiona1 Dairy ,vitl1 23% of t.he maTketand the second ranking company being a large Ohio independent

,,'ith approximately 20% of the market It is concl11lec1 that therecord fails to establish that the effect of respond('nt s acquisition

of Lindner may be substantially to lessen competition : or to tendto create a monopoly in any line of commerce in any section ofthe country.

O. Community Creamery

1. Respondent contends that it "is doubtful ,,'hether the Com-mission has sustained its burden of proof that Community was en-gaged in interstate commerce" (Proposed Findings, p. 171). The

record discloses that respondent regularly solc1 packag-ed fluid milkto a distributor in Idaho , amounting to approximat.ely 3% of itsfluid milk sales. Respondent:s position that snell sales "'ere not incommerce is nppafcntly baser1 on the. illct that ComnlUn ty "mfld(

370-T02- Tl--

682 FEDERAL TRADE CO::vBUSSION DECISIONS

Conclusions 67 E'

no direct sales to purchasers in Idaho" inasmnch as its Idaho dis-tributor picked up the milk at Community s dock (feZ. p. 169).

It is the opinion a.nd 'Conclusion of the examiner that Community wa.s

engaged in commerce, within the meaning of the Clayton Act and theFederal Trade COllmis ion Act, since there was a practical continuityin commerce of the fluid milk sold to the Idaho distributor despitet.he fact that respondent. did not itself deliverthe milk across st.ate lines.

2. At the time of its acquisition in April 1960 , Community wasone of the largest independent dairies in the State of i\lontana

with net sales in exeess of $3 000 000. Its sales territory in western

Montana overlapped that of respondent, which served a somewhatlarg-er area of the State. Respondent accounted for approximately24% of the frozen product shipments in Montana , and Communityshare may be estimat.ed as approximately 50/0. 145 Community wasa larger factor in the fluid milk product line, with approximately

15.5% of the value of shipments in the State, while respondent ac-counted for approximately 4.4%. \Vithin less than a year after itsacquisition of Community, respondent had acquired three other

substantial dairy companies, whose combined sales exceeded Com-

munity s sales by approximately $300 000.'" Respondent's sales in1961 , based on figures which refleet only a portion of the sales oft.he aC'quirNl companies \ showed an inc1'ea82 of ,13. 5% in the fluidmilk linc and 42.5% in the ice cream product line. 'While there areno market share figures in the record for the three companies otherthan Community, it may be assumed that these three companiesadded at least 5% to respondent's State market share in the fluidmilk product line, and made a somewhat smaller contribution toits position in the iee cream product line. It may be estimated thatfollowing these aequisitions, respondent's share of milk sold in theState of Montana was not less than 20 to 25%, and its share ofice cream sales not less than 35 to 40%. It was undoubtedly thelargest, if not the dominant , factor in the dairy industry in theState.

He AIthough the figures in the record (Ire percentages of shipments or production inthe State, it may be IlS l1med that they closely reflect the hares of sale made withinthe State, since the geographic isolation and mountainous terrain of the State minimizeshipments in and out of the State.

146 Respondent refer to these as being " mall local'" '" .. operations. " In relation tothe o;ize of companies operating in MontfUla they were substantial companie . PioneerDairy s sales , which consisted entirely of fluid milk , were double the milk sales of re-spondent' s Great Falls Plant. Bilings DaJry s sales , which were divided between miI!; andice cren. , were almost double the milk and Ice cream sales of respondent's Bilingsplant. IIenne s sales, which were In both milk and ice cream, were more than doublethose of respondent's Butte branch.

BEATRICE FOODS COMPANY 683

473 Conclusions

3. The appropriate ma,rket area, 1ms been found to be the westernMontana area in which Community Dairy distributed. 'Vhi1e thereare no market-share figures in the record in terms of this area, therecan be little doubt, in view of Community s sizeable share in the

State as a whole, that in the relatively small portion of the Statein which it distributed it must have been a major, if not the largestfactor in the market. Althoug-h respondent's distribution area wasconsiderably larger than Community , it seems evident that it toowas a very substantial factor in its territory, particularly in thefrozen product line, in view of its substantial position in the Stawas a whole.

4. Based on the record as a whole, including the substantial mar-ket position or both respondent and Community, the close proximityand overlap or their distribution areas, the substantial increase inconcentration in the frozen product line resulting from the acquisi-

tion , the substantial improvement in the respondent' s market posi-tion in the fluid milk line as a result of the acquisition , and respond-cnes pattern of acquisitions in the State, it is concluded that theeffect of respondent' s acquisition of Community Creamery may besubstantially to lessen eompetition , or to tend to create a monopoJyin the fluid milk and ice cream product lines in the western Mon-tana area.

P. James S. Merritt Company

1. The record indicates that Merritt distributed frozen products

in " Metropolitan Kansas City." Complaint counsel contend thatlel'l'itt' s territory included the suburban area in the State of Kansas.

However, the reeord does not establish this as a faet. It is, accord-ingly, concluded that complaint counsel have failed to sust.ain theburden of proving that ferritt '''as engaged in commerce, withinthe meaning- of the Clayton Act and the Federal Trade CommissionAct.

2. The Ierritt acquisition , in September 1958 , involved that partof Merritt's business which was devoted to the manufacture of bulkand package ice cream. The seller retained and continued to operateits frozen novelty business. Merritt sold approximately 400 000 gal-lons of bulk and paekage ice cream annuaJJy. Respondent' s own salesin the Kansas City area were approximately 10 000 gallons. The rec-ord contains no evidence as to either company s market shares inthe Kansas City area or as to the extent of eoncentration therein.It is conclnded that eomplaint counsel have failed to establish that

the effect of respondent's acquisition of :\erritt may be substan-

684 FEDERAL TRADE CQl\L\IISSIQN DECISIONS

Conclusions 67 F. 'l,

tiallv to Jessen competition, or to tend to create a

line of commerce in any section of the country.

monopoly in any

Q. Arden Farms Co. (Limvood Division)

1. The record estftblishes that the Linwood Division of ArdenFarms Co. was engaged in the distribution of frozen products inthe Kansas City metropo1itan area, including the adjoining sub-

urbs in the St te of I(ansas. It is accordingly concluded that Lin-

,,;ood was engaged in C01l1nerCe, within the meaning of the ClaytonAct a,nd the Federal Trade Commission Act.

2. .At the time of its acquisition by respondent in June 1960 , Lin-\yoocFs sales were approximately S850 OOn, consisting of 655 000g-allons of ice cream and other frozen products. It had operated ata los ; in t.wo of the four years prior to its acquisition. Althoughit appears that respondent had acquired James P. f,J:erritt Companytwo years earlier, with a volmne of approximately 400 000 gallonsthe record does not disclose what respondenes volume ,\YflS in theI(ansas City area at the time of the Linwood acquisition. The rec-ord is also lacking in evidence as to the maTket shares of the acqniredand acquiring companies , a,nd a,s to the extent of concentration inthe Kansas City metropolitan area. It is accordingly concluded thatcomplaint counsel have failed to estab1ish that the effect of respond-ent' s ac,quisition of the Linwood Division of Arden Farms may besubstantially to lessen competition or to tend to create a monopolyin any line of commerce in any section of the country.

. Gateway Creamery Company

1. Respondent admits in its anSTIer, the record establishes, andthe examiner concludes that Gateway Crea,mcry '\vas engaged in com-merce , within t.he meaning of the Clayton ,\ct and the Federal TradeCommission Act.

2. The record discloses that at the time of its acquisition by re-spondent in October 1954, Gateway had "nnnal fluid milk sales ofapproximately 500 000 gallons and ice cream sales of approximately190 000 gallons. Limited market share data in the record indicatesthat Gateway s share of the fluid miJk market in the Joplin , :\fissouriarea was of the order of magnitude of 11 %. There is no evidence asto its market posit.ion in the ice cream product line. The record isalso lacking in evidence as to respondent's market share and theextent of concentration in any appropriate market. It is accordinglyconcluded that. complaint counsel have failed to establish that the

BEATRICE FOODS C011PANY 685

473 Conclusions

efl' ect of rcspondcnt s acquisition of Gate1ya.y Creamery may be sub-stant.aJIy to lessen competition , or to tend to create a. monopoly inuny line of commerce in any section of the country.

S. Valle.y CreamBry Company, Inc.

1. Valley Creamery Co. was acquired by respondent in May 1956

through its wholly oITned subsidiary Russell Creamery Co. AlthoughRussell was not engaged in commerce, respondent admittedly was.

Section 7 of the Clayton Act prohibits a corporation engaged incommerce from rnaking ccrtain acquisitions

, "

cUrectly or indirectly.

It is the. conclusion of the examiner that the acquisit.ion of Val1eyCrerunery was , in efiect, an acquisition by rcspondent , and accordinglyiYClS lUl llcql1isition by a corporation engaged in commercc. Since

Val1cy Cre ullery distributed in l\Jinnesota and North Dakota, it is

eonclncled that it too was engaged in commerce , within the meaningof the Clayton Act and the Federal Trade Commission Act.2. Respondent acquired only the frozen products portion of the

business of Valley Creamery, 11hich was engaged in processing anddistributing a broad Jine of tbiry products. At the time of the a(:qlli-sition Valley Creameris frozen product sales Iycre under S50 000.The record contains no data as to the market shares of the acquired

and acquiring companies, or the extent of concentration in any rele-vant. market. It is concluded that c01nplaint counsel haye failed toestablish that the eUect of respondent's acquisition of the frozen

procIncts portion of Valley Crerunery s business may be substantiallyto lessen competition , or to tend to create a monopoly in any line ofcommerce in any section of the country.

T. A. L. Drumunc1 Coml':\1H

1. The record discloses that Brumund' s sales \'-ere 1lnde almostentirely in Lake County, Illinois. There is some indication that itmay have served a few customers in \Visconsin. IIowever, the m'c1C'lJCC is so fragmentary and insubst:mtial that it callnot be concludedcOlnplaint counsel have sustained the burden of proving that Bru-l1und 'yas enga.ged in commerce , within the meaning of the ClaytonAct and the Federal Trade COllnnission Act.

2. A I, the timc of its acquisition in October 1951 , Brumund' s annualsales ,yere approximately $500 000 , consisting of fluid milk productsand ice cream. It Iyas acquired for fl eonsideration of approximately$73 000. The record is lacking in subst antial and reliable data as totIle market shares of the acquired ilnc1 acquiring companies , and the

686 FEDERAL TRADE COM1\IISSION DECISIO

Conclll::ions 6T E, T.

extent of concentration in any appropriate market. The examinerdoes not rega.rd the fragmentary consumers ' survey in the record , assubstantial and reliable evidence to establish market shares and con-centration. It is aceording-Iy concluded that complaint counsel have

failed to establish that the effect of respondent's acquisition of Bru-IDund may be substantially to lessen competition , or to tend to createa monopoly in any line of commerce in any section of the country.

U. Lagomarcino-Grupe Company

1. Respondent admits in its answer, the record establishe, , and theexaminer concludes that Lagomareino-Grupe was engaged in com-merce , 1\-ithin the meaning of the Clayton Act and the Federal TradeCommission Act.

2. Respondent acquirecl the frozen products portion of Lago.marcino- Grupe s business in July 19 '52 , for consideration of 835 000.While the rceord discloses that Lagomarcino-Grupe had fro%en prod-ucts 8aJes of $150 000 , there is no evidence as to its market share orthat of respondent in any appropriate market , nor as to the extent ofc.oncentration therein. It is concluded that complaint counsel have

failed to establish that the effect of respondent's acquisition of the

frozen products portion of Lagomarcino-Grllpe s business may besubstantially to lessen competition: or to tend to create a monopolyin any line of commerce in any section of the country.

V. CEnton Ice Cream Company

1. The record establishes and the examiner concludes that ClintonIce Cream Company \"as engaged in commerce , within the meaningof the Clayton Act and the Federal Tradc Commission Act.

2. Clinton , which was acquired in September 1955 for a considera-tion of approximately $10 000 , had iee cream sales of approximately$76 000. The record contains no evidence as to the market shares of

the acquired and acquiring companies , or the extent of concentrationin any appropriate markct. It is concluded that complaint counsel

have failed to establish that the effect of respondent's acquisition ofCEnton may be substantially to lessen competition, or to tend to

create a monopoly in any Ene of commerce in any section of thecountry.

1V. Andalusia Dairy Company

1. Based on the evidence that Andalusia received its supply of rawmiJk principally from ontside the State , it is concluded that it was

BEATRICE YODDS COMPA:-Y 687

473 Conclusjons

engag-ed in commerce, within the meaning of the Clayton Act andthe Federal Trade Commission Act.

2. The acquisition involved only the business of Andalusia s branehplant in western Pennsylvania, which was acqnired in June 1952 fora eonsideration of approximately $50 000. The branch had milk andiec cream sales of approximately $350 000. The reeord does not permita determinatiou as to what is the appropriate market area. In the

broad western Pennsylvania milk market, respondent accounted for6% of the area s milk sales and Andalusia had . 001 of the market.

It is concluded that compJaint eOllnsel have failed to establish that

the effect of respondent' s acquisition of Allclalusia s branch operationmay be subst.antialJy to Jessen competition, or to teud to create a

monopoly in any line of commerce in any section of the country.

X. Coca-Cob TIott1ing Co. of Clifton Forge , Inc.Division)

(Peerless Creamery

1. The record establishes and the examiner concludes that CocaCo1a:s Pem'less Division ,,- as engaged in commerce , 'iyithin the mean-ing of the Clayton Act and the Federal Trade Commission Act.

. The acquisition in Iay 1953 involved only the ice cream portionof the dairy business conclucted by Coca-Colf1 s Pe,crIess Divisionand invoh ecl a consideration or approxim1ltely $70 000, l.Jeer1e88' ice

cream sales were approximately $183 000. The record does not permitfln illfol'med determination as to the appropriate market area, Therecord i8 also lacking in reliable evidence as to the market shares oftho acquired and acquiring companies , or the extent of concentrationin an appropriate market area. , It is concluded that complaint counselhave fi,ilecl to establish that the effect of l'espomlent' s acquisition ofCoca-Cola Bottling Co, s Peerless Division 11ft)' be substantially tolessen competition , or to te.nd to create a monopoly in any line ofcommerce in any section of the countr

Y. Ritzmann Ice Cream Company, Inc.

1. The record establishes and the examiner concludes that Ritz-mann Ice Cream Conlpany ,yas engaged in commerce , within themeaning of the Clayton Act and the Federal Trade Commission Act.2. IUtzmann was aequired in June lD59 for a consideration of

approximately $27 000, Its sales were approximately $150 000, on

VI hich it had sustainec110sscs in the hvo years prior to its acquisition.The ftcqnisition ,," p.s 1lRde after the se11cl' had been advised by theCommission t11Rt -it did not contemplatc taking any action to declare

688 FEDERAL TRADE CO DlISSIO DECISIO:-

ConclusIons (\T

the sale illegal. The I'Bcord contains no evidence as to the marketshares or the acquired and acquiring companies, or the extent of

eoncentrationin any tppropriate ll1arket. It is concluded that com-plaint counsel havc failed to establish that the effect of respondent'

acquisition or Rit.zmann may be substantially to lessen competition01' to tend to Cl'Cllte a monopoly in any section or the country in anyEne of commerce.

Z. Farmers Equity Co- operative Crea,mery Associatio1l Inc.

1. The evidence is insuffcient to establish that Ffirmcl's Equity TYas

engaged in connnercc , within the meaning or the Clayton Act andthe Fer1eral Trade Commission Act. The 11181'8 fact that it was incor-porated in a state other than that in which it did business does not

establish its engagement in commercc. The evidence as to possib1esales to a customer in :.Iontana is too inconclusive to support a fina-iug that it "\yas engaged in commercc.

. The acquisition in August HH52 involved the purchase of certainice cream cabinets and a transfer of customers incident thereto , fora total consicle.r::tion of $13 800. Farmers Equity's sales were approxi-

tely 30 000 ganons annually. The recorel is lacking in evidence asto tho market shares of the acquired and acquiring companies , andas to the extent of concentration in any appropriate market. It isconcluded that comphlint counsel h"'-8 failed to establish that the

ffe,ct of respondent s acquisition of certain of FalTJlerS Equit:,assets may be substantiaDy to lessen competition , or to tend to createa monopoly in any line or commerce in any section of the count.ry.

1. Rose LaTIn Dairies of Arkansas : Inc.

1. Respondent a.dmits in its ans , the record establishes , and theexaminer concludes that Hose Lawn rvas engaged in commerce , with-in the me,aning of the Clayton Act and the Federal Trade Commis-sion Act.

2. R.ose La,,- , which was a distributor of fluid milk , was acquiredin .January 1955 in partial repayment of a debt owing to respondent.Its net sales during a seven-month period prior to the acquisition\yerc approximately $225 000, on which it sustained a loss of $30 000.

The record contains no evidence as to the market share of the acquiredor acquiring companies , or the extent of concentration in any appro-priate market arca. It is concluded that complaint counsel have failedto establish that the effect of respondent's acquisition of Rose Lawn

BEATRICE FOODS Cm1pA-,Y 689

473 COllclu:,iOI1S

may be snbstantially to lessen competition, or to tend to ereate a

monopoly in any line of commerce in any section of the country.

Dahl-Cro- , Ltd.

1. Respondent admits in its Hnswer, the record establishes, andthe exa.miner concludes that Dahl-Cro- l\.fa was engaged in commercewithin the meaning of the Clayton Act and the Federal Trade Com-mission Act.

2. Dahl-Cro-:'Ua was acquired in December 1954 for a considerationof approximately $100 000. Its sales, consisting entirely of frozen

products , \\"ere approximately $120 000 annually. Hespondent andDahl-Cro- fa were the only two companies engaged in the sale of icecream and other frozen products on the Island of lIa,,' aii. Respond-nt had entered the Island a little over a year earlier through the

acquisition of a Sllbsidiary of Creameries of America. It accountedfor approximately t,yo-thirc1s of the frozen products sold on theIsland of Hawaii , while Dahl-Cro-Ma accounted for approximatelyone-thirc1. It has been found that the Island of Hawaii is an appro-priate market area. It is conclncled that the e!feet of respondent'

aequisition of Dahl- Cro-)Ja may be substnntinlly to lesse.n competition01' to tend to create a monopoly on the. Ishnd of I-Ia,yaii in the frozenproduct line.

3. Other Acqnis;tions

1. The remaining acquisitions not hereinabove discn sec1 ,,.ereeither, (a) corporations concerning ,,"hich compla.int counsel haveconceded the record fails to establish engagement in commerce, or(b) non corporate companies concerning which, with a few excep-

tions , compJaint counsellike"ise concede the record fa.ils to esblh1ishengagement in commerce. Complaint counsel contend that theaequisition of such companies , corporate and non eorporate, is partof the const.ant and systematic elimination of actual and potentialcompetitors ,yhieh, together "ith the acquisition or corporatjonsclaimed to be in commerce , constitutes an unfair method of com-petition Iyjthin the meaning of Section 5 of the Federal Trade Com-mission Act.

2. In the original proposed order filed by them , complaint counseldid not seek any divestiture prm ision with respect to corporations

not in commerce or with respect to non-corporate businesses. TheycontFl1c1ccl , hOiycn:r, t.hat Iyhi1e the remainin . aC(llli" ltions "did nottechnically fall within the requiremcnts of ,section 7

::

t:wy consti-tuted an unfair Jnethoc1 of competitioll, in violniioJJ ()f Section 5 a11l

690 FEDERAL THADE COMMISSION DECISIOXS

ConclllsiOI1S (i7 r.

that the public interest required respondent' c!rive toward amonopoly position be stopped by a cease and desist order preventingnil further acquisitions. (Proposed Findings , 1'1'. 580-

3. Subsequent to the filing of their original proposed findings andorder complaint counsel , pursuant to leave granted , filed an amendedproposed order in which divestiture was sought 'with respect to anof the eompanies acquired by respondent , irrespective of whetherthey were in commerce and irrespective of whether they were cor-porations. The basis for counsel's filing of a proposed amended orderis the Supreme Court decision in Pan AmeTican Warld Airways , Inc.Y. S., 871 D. S. 2DG (1903). III that casc Ow Court interpreted rtprovision of the Federal Aviation Act , conferring jurisdiction on theCivn Aeronautics Board over "unfair methods of competition in airtransportation " as being in pari materia with the "unfair methodsuf competition " clause contained in Section 5 of the Federal TradeCommission Act. The Court further held that the authority of the

Civil Aeronautics Board to enjoin "unfair methods of competitioncarried with it the pmver to order divestiture. Complaint counselargue that the constant and systematic acquisition of other dairycompanies is an unfair method of competition , and hence that theCommission may order the divestiture of all companies so acquiredwithout regard to whether they are corporations or are engaged in

commerce.4. The esaminer does not interpret the Supreme Court' s decision in

the Pan Amcrican TVm'ld AiTways case , as supporting the positionnow. urged by complaint counsel. The power of divestiture which the

Supreme Court said the Civil Aeronautics Board possessed presup.poses that the unfair method of competition involved is one over

'\Yh1ch the Board has jurisdiction , viz , one which occurred "in airtransportation." Similarly, divestiture would be a.ppropriate in aFedera.l Trade Commissioll proceeding only "\here the unfair methodof competition is Olle over 'i,"hich the Commission has jurisdictionvlz : an unfair method of competition "in commerce." The examinerdoes not unde.rstanc1 that the Commission has jurisdiction over theacquisition of intrastate businesses merely because, as complaintcOllJlsel contends , the company acquiring them was in commerce.Fllrthennore, the meTe acquisition of another company, whether ornot in commerc,e. is not an unfair met.hod of competition unless

t here is a sho",'ing OT a probable fl(1verse compet.itive effect resultingthe.re, from.

f). The', examiner is not 11lil"\YHre that in an interlocutory ruling inthe FOI' elllmcf Dairies casE' : the Commission held that ':practices not

BEATRICE FOODS COMPA.l 691

473 Conclusior.s

technica1ly within the scope of a specific section of the Clayton ActJIn.Y1 llCYCl'theless , C01!stittlte n yiolaLiol1 of ('ctiDn :5 or the FederalTrade Commission Act." The Commission did not , however, rulethat the acquisition of non-corporate businesses or of businesses not

engaged in commerce is a,n unfair method of competition. In its finaldecision and order in the ca.se the COlnmission considered it unnecessary to rule all whether the non-commerce and non corporate acqui-

sitions there involved would fall within Section 5, as an unfairmethod of competition , since it found that "the evidence in thisrecord wil not sustain a finding of the Seetion 7 adverse competitive

effect requirements as to each of respondent's acquisition upon whichcOlln:oel rely iHr ;)2l" Conseq1Jelltly eYC'll if the Section 7 require-ment that the acquisition must involve a corporation engaged incommerCE: is overlooked in a Section 5 proceeding, there must be

showing of the type of adverse competitive impact which is contem-

p1ated by Section 7.6. With respect to thc requirement that the acquired company must

be a corporation , it should be noted t.hat in the Pan American W oridAirways case , the Supreme Court (at 312 n.17) st.udiously avoidedoverruling -its earlier holding in FTO v. Eastman Koda7 00. 274

S. 610 that divestiture ,,,as not an appropriate remedy jn n Section5 proceeding where it involved assets , the acquisition of which eouldnot be challenged under the original ver:odon of Section 'I of theClayton \('t, . \Vllile the. amC'llclec1 Section 7 now coyers both 8to('kf!1d asset acqnisitjons. it is still JimHec1 to the flcqui ition thereof

from corporations en tag-ecl in COllJnercc. It is incol1ceivablr thatCongress wonlcl have fonnd it npu' ssal':'- to expand the Commissionjl!ri,,c1ict.ion to coycr fl8 ('t acquisitions from corporatiolls t' l1ga!;pd incommerce if the Commission illreac1y I-H\(l jl1riscliction l1THler Section;) of 1-1e .Federal Trade Commission Act on'l' fl('\111i8ition8 not co\'-('reel by t.ho CJayton --,\ct inclucling non-corporate enterprises or bnsl-nesses not in commerce.

T. Even if it be. f1ssnmec1 tlwt the fLcquisition of non-corporateImsincsses not ('oyered by Se.cjon 7 may be rcaehed 111(ler Section 5pf the J, ecleral Tl'nde COHllnission A. ct. it is still necessary to estab-lish their engageme,nt in commeTee nnel the prohahle flch-ersr ilnpaetof s11ch iH' f'111SitioJls , in order to jw:tify c1in'stiture. In tJw ('it::€, ofthe. great lmJk of the non- corpo1'nte acquisitions in this case, COlT-phint counsel concede tlwt the record fai1s to establish their engage-ment in commerce. ,Vith l'('sprct to the fe, ' such acquisitions flS to\1hich there is eyiclencp of COmnwl'Cl' , tlH' 1'e('orc1 fail.s 10 e::tah1ishthe probability of any fl(herse competitiyp irnpact in an app opriatc

692 FEDEHAL TRADE COJ.E\nSSIOX DECISIO:\TS

Final Conclusions (-T I'. TT.

market. To the extent that l'cspondent:s program of acquisitions, as

a whole has cumulative adverse competitive implications of thetype referred to in the Commission s final decision in ForemostlJa;,'ies (ot 52-53) (60 F. C. 1090J, it can be dealt with in a mannerother tb,l11 that of ordering the c1i\Cestitul'c of non- corporate busi-nesses or of businesses not. engaged in ('omn1(1'C8. The e. xarninPT finds itunnecessaTY to determine whether respondent!s "proclivity forp-rowth by acqnisitions (id. at 53) (60 F. C. 1091:1 is an unfair

met1lOd of competition , within the meaning of Section 5 of the Fed-eral Trade Commission Act , since adequate relief may be grantednnder Section 7 of the Chyton Act.

II. AS TO THE OTHER PR.&.CTICES

1. The complaint \ in Paragraph 8 thereof, al1eges t.hat respondent'great jze and financial resources, in rehtion to that of its com-

petit.ors , together with its product and geographic diversificationmay giyc and have given it t.he power to enga.ge in certaill busine.p1'octices. In Paragraph 12 of the complaint. it is cho1'p-ed t.hat all ofthe acquisitions, acts and prnc.ic.es alle,gec1 in the, complaint constitutetL vioht.ion of Section 5 of the Federal Trade Commission Act. I-Iowcycr, as heretofore mentioned (p. n-1DL the IJHl'insr, of pleadinthe prnctices alleged in Paragraph S "'-as to permit a showing as tothe economie power possessed by respondent and to provide a back-

gronnd for determining tlw competitiyc impact of the acquisitionsl1lFle. b:v it, . Compbint counsel agreed that they ,YQuld seek no ceasenn(1 (1e. ist order with respect to such prRetiees.

2. Complaint counsel make 110 contention in the 11roposcd findingsflIed hy t.hem that the practices al1cged in Paragraph 8 of the C011-pJaint. eonstitute an unfair method of competition , within tIle mpaning of Section 5. They have submitted no proposed order thatrespondcnt. cease and desist therefrom. It is , accorc1inp:ly, unnecessaryto determine 'whether any of the practices alleged in Paragraph 8 orthe complaint eonstitutes an unfair method of compe6tion , in vio1a-

tion of Section 5 of the, Federal Trade. Commission Act.

FINAL CONCL-cSIONS OP LAVl

1. Respondent, Beatrice Foods Co. , a corporation engaged in com-meTce, acqulred the ::toek or asset.f3 of the following corporations

ngagec1 in commerce , as "commerce" is r1efinec1 in the Clayton Act:Creameries of America, Inc. , Greenbrier Dairy Products Company,D(11'11am Dniry PrO(ll1ct . Inc. ) Community C1'0f!1101':" , and Dahl- Cro-:Un. Ltc!.

BEATRICE FOODS C02\lPA1\'Y 693

473 The RenH c1y

2. The acquisition by respondent , Beatrice Foods Co. of the stock

or assets of the aforementioned corporations was in violation of Sec-tion 7 of the Clayton Act.

3. Complaint connsel have failed to establish, by substantialreliable and probative evidence, that the aequisition by respondentBeatrice Foods Co. , of the stock or assets of the corporations or in-dividually owned concerns alleged in Paragraphs 6 and 7 of thecomplaint , other t.han those specified in Paragraph 1 hereof, was inviolation of either Section 7 of the Clayton Act or Section 5 of theFederal Trade Commission Act.

THE R.EMEDY

1. It is settled that normally divcstiture is the appropriate remedy\"1101'8 a violation of Section 7 hfls been found. S. v. E. 1. duPont

de NemonTs Co. 366 u.S. 316. There are no circumstanees presentin the instant proceeding to suggest that it would not be appropriateto order the divestiture of those corporations engaged in commercewhich it has been hereinabove found were acquired in violation ofSection 7 of the Clayton Act.

2. TI,e only acquisition with respect to which it might be urgedthat complete divestiture of the acquired company is not appropriateis that of Creameries of America , Inc., a corporation doing businessin a multi-state area, with respect to which it has been found that themost direct and inunediate impact of the acquisition was in a groupof counties in the lower San Francisco Bay area ,;vhere respondentand the acquired company competed. The examiner has consideredthe dictum in t.he Brown Shoe case (at 337 n.65) that, where theacclnired and acquiring companies compete in only Po smaJI portionof their respective territories

, "

that fact onlc1 * * * be properlyconsidered in determining the equitable relief to be decreed." How-eyer, as t.he examiner has previously indicated, the Creameriesacquisition has anticompetitivc implications beyond the areas w11ere

the companies directly competed , and it would frustrate the intentof Section 7 to limit any order of divestiture to such areas.

3. Although only certain of the ac.quisitions have been found tobe in violation of Section 7, the record discloses that respondent hasfoJlowed a calculated policy of expansion by acquisition. Its growthin the dairy industry has been accomplished principa11y by the(\cql1istion of other companie , 'IVhile ,good managrmenL energeticsales effort and sound fiscal policies have undoubtedly aided itsgrO\yth , these have been built nround a program of expansion byacquisition , rather than through internal expansion into new are&s.

694 FEDERAL TRADE COMMISSION DEClSIO:'S

The ReJ1('(ly 67 F.

Many of its largest acquisitions have been financed by the issuanceof additiollrtl stock rather than through the expenditure of internally-generated resources.

4. As has been previonsly found, during the period between 1928

and 1950 respondent aequired over 70 dairy concerns. In the deeade

between 1951 and 1961 , its acquisition prog-ram accelerated and itacquired approximately 175 additional dairy concerns, which werelargely responsible for an inerease in its sales during this decade ofapproximately 60%. Respondent's program of acquisitions has beenparalleled by that of its principal large eompetitors. Eight of thesecompanies , including- rcspondent , acquired approximately 500 dairycompanies during the period from 1950 to 1961.5. In addition to the present complaint against respondent, the

Commission has instituted similar proceedings against respondent'three largest competitors : viz Natiol1ftl Dairy, Borden and FOl'Cn103t.These companies, toget.her ,,-ith respondent , are the four largest dairycompanies in the United St.ates. The proceeding against ForemostDai;'ies Docket 6495 (60 F. C. 944J, terminated in the issuance of

an ordcr of divestiture ,,'ith respcct to a number of the acquiredcompanies. The Commission did not consider it appropriate to enjointhe making of further acquisitions since the order of divestiturewould "reduce Foremost to less than one-half its present size andl'eturn it to approximately the same relative position it held in theindustry pl'iol' to 1951." (Jr!. at 53 L60 F. C. 1092J. ) The proceedingin the National Dai,' ease, Doeket 6651 (62 F. C. 120), terminatedin an order by consent , pursuant to which National was ordered todivest itself of certain of the acquired companies and was enjoinedfrom making any further dairy company acquisitions for a period often years, without prior approval of the Commission. The Bordenproceeding, Docket 6652 LG5 F. C. 2961, is still pending before theCommission.

6. Complaint counsel in the insta.nt proceeding seek an order whichwould prohibit any further acquisitions of dairy companies by re-spondent, without prior approval of the Commission. Such order issimilar to that agl'eed to in the National Dairy ease, except that it iswithout limitation as to time. In the opinion of the examincr aprohibition on future acquisitions , with an appropriate time limita-tion , is justified in the instant proceeding. Unlike the situation in theForemost Dairies case , the divestitures here ordered will not returnrespondent substantially to its 1951 position.147 Furthermore, whercas

H7 The cornpl1nles acquired by respondent since J-950 bad snJe;; aggreguting more tlJiin$147 500,000. The sales of the companies ordeH'd to be divested amounted to npproxi-mateJy 857, 120 000. One company, Creameries of America, accounterJ for $49.000. 000of the latter figure.

BEATRICE FOODS COMPANY 695

473 Ordel'

Foremost started from a relatively low base, with 1950 sales ofapproximately $48 000 000, respondent's 1950 sales were already$205 000 000 and it was by then one of the top companies in the

dairy industry. Respondent has reached the point in its growthwhere , as the court stated in S. v. J eT)'old Electronics CorjJ. 187F. Supp. 545 (DC ED Pa.

),

aff'd. 365 U.S. 567

, "

it can be said thatit is a reasonable probability that lfurther acqnisitionsJ will havethe prohibited effects when they are examined in the context of(respondenVsJ prominent position in the industry." In vie,,, of 1'c-pondent' s "proclivity lor growth by acquisitions (Foremost

Dail'ies at 53) (60 F. C. 1091J, its "prominent position in theindustry, and the fact that the cumulative effect of its acquisitions

will not be dissipated by the divestitures here ordered, it is the

opinion or the eX lminer that it should be enjoined from making anyfurther dairy acquisitions, for a period or ten year:: , ,yithollt priorapproval of the Commission.

ORDER

it ,is onle'led That l'e.spol1dent Beatrice Foods Co. , a corporationand its offcers , directors, agents, representatives and mnployees, shallwithin one (1) year from the date this order shall become fialdivest itself absolutely, in good faith , of all stock, assets , propertiesrights and privileges , tangible or intangible , including, but not lim-iteel to, an contract rights, plants, machinery, equipment, tradenames, trademarks, and good will aequired by Beatrice Foods Co.a.s a result of the acquisition of the stock, share capita. : or assets ofeach of the following named corporations: Creameries of AmericaInc. and its subsidiaries , Greenbrier Dairy Products Company, Dur-ham Dairy Products, Ine. , Community Creamery, and Dahl-Cro-Ltd. , together with a.Il plants , machinery, buildings , irnprovementsequipment, and other property of whatever description that havebeen added to or pJaced on the premises of each of the former above-named corporations by respondent, as may be necessary to restoreeach of them as a going concern and to establish each of them as aneffective competitor in substantially a1l the same basic lines of eom-meree in -which each of the respective acquired corporations was en-gaged at the time of its acquisition.

Pending divestiture, respondent shall not make any changes inany of the above-mentioned plants, machinery, buildings, equip-ment , or other property of whatever description , whieh shall impairtheir present rated capacity for the production of their respectivedairy products , or their market value , unless said capacity or value

restored prior to rliymtiture.

696 FEDERAL THADE CO:VIMISSION DECISIONS

Ordel' 6i F.

Respondent in such divestiture shall not sell or transfer, direetlyor indirectly, a.ny of the stock, assets , properties , rights or privilegestangible or intang-ible, acquired , added , modified or placed on thepremises of any of the above-named concerns by respondent , to any-one who, at the time of divestiture, is a stockholder of respondent, ort.o a,nyone who is or, at the time of acquisition , was an offcer, direc-tor , representative , employee , or agent of, or otherwise , directly orindirectly, connected with, or under the control or influence ofrespondent.

It is f,t1'the1' oJ'dered That , in said divestiture , respondent shall notsell or transfer, directly or indirectly, any of the stock, assets , prop-erties, rights or privileges, tangible or intangible, to any corporationor to anyone ,dlO, at the time of said dive,stiture, is an offcer , direc-tor, employee or agent of such eorporation , which, at the time ofsuch sale OJ' t.ransfer, is a substant.ial factor in the dairy productsindust.ry, if the effect of such sale or transfer migl1t be to substantial-ly lessen competition or tend to create a monopoly or oligopoly inanyone of the said dairy products, in any section of the country.

It is fw,ther orde1'd That the compJaint herein be , and it hereby, dismissed insofar as it alleges that respondent acquired dairy

product concerns, other than those hereinabove specifically mentionedin vioJation of Section 7 of the Clayton Act or Section 5 of theFederal Trade Commission Act.

It is fw'lw?' ordeJ'ed That respondent , Beatrice Foods Co. shallwithin such time as may be fixed by order of the Federal TradeCommi.ssion, sublnit in writing for the consideration and approvalof the Commission , its plan for carrying out the provisions of thisorder, such phn to include the date within which full compliancemay be effected.

It is fltrtlwT ordeJ'ed That for a period of ten (10) years from thedate this order shall become find , respondent , BeatTice Foods Co.shaD cease and desi::t from acquiring directly or indirectly, throughsubsidiaries or otherwise , the whole or any part of the stock , sharecapital or assets (other than products sold in the courso of business)

of any dome.stic concern , corporate or non- c.orporate : engaged princi-pally or as one of its malar commodity lines at the time of suchacquisition in any state of the Uniteel St ltes in the business of mam.l-facturing, proeessing or selling at 1yholesale or on retail milk routes(a) fluid milk, (b) ice cream. ice milk, melJorine sherbets or waterices, (c) natural or processed cheese, or (d) butter, without theprior apprm"al of the Federal Trade Commission.

BEATRICE FOODS CO:\PANY 697

tT3 )pinion

OPINIO OF THE COj\BfISSION

APRIl.. 26 , 1965

By ELJL4.N Commis8ionM'

The complaint in this maiter was issued on October 16, 1956 , andsubsequently amended. It challenges under Section 7 of the Clayton

Act , as amended,I and Section 5 of the Federal Trade CommissionAct 2 175 acquisitions made by respondent beginning in 1951.

espondent is the third largest dairy company in the United Statesin terms of total anllual sales (including nondairy products), whichwere $443 mil1ion in 1959-lg60. It ranks fourth in both fluid milk

and frozen dessert shipments. ,Vhile it is principally enga,ged in thepurchase , ll1anufacture , processing and distribution of dairy productsthroughout the continental United States and Havmii , it also manu-factures and/or sells other food products, including Inargarinefrozen foods, Chinese and 1exica,n foods, pickles and preserves

oJi' es and oil , potato chips, candy, mints, and snack foods.:! It alsoopeTates a number of public cold-storage warehouses.

Untillg28 , respondent was principally eugaged in the butter, eg-g"nd poultry business. It then began to diversify into other productlines in the dairy field, particularJy fluid milk and iee cream. Be-tween 1928 and 1950 its net sales rose from $57.4 millon to $205.million. This increase was due in large part to the acquisition of

more than 70 concerns engaged in the purchase , manufacture, proe-

sing and distributjon of fluid milk, ice cream , and other dairyproducts. Respondent s program of growth through acquisitions

1 Section 7 of the Clayton Act, as amended, 15 D. C. IS. proyides in TJertincnt purt:

That DO corporation engaged in commerce hall acquire , directly or indirectly, the

wb01e or any part of the stock or other share c pital and JlO corporation subject to the

jurisdiction of the Federal Trade Commission shall aCCluire the \\'hole or any p:llt ofthe assets of anotber corporation engaged also in commerce, whcre in any line of COll

mercc in any section of the C01Jntr , tbe effect of such acquisition may be llbsti:l1tiallyto Jessen competition, or to tend to create a monopoly."

SectioD 5 (a) (6) of the Fe(lernl Trade Commis,;ion Act, 15 D. C. 45 (a) (0), prry,-des:

The Commission is hereby empo'\-ered and directed to preycnt persons, partnerships,or \Corporations " .. .. from using unfair methods of competition in commerce and unfairor deccpti'te ncts or practices in commerce.

In 1939 Be:ltrice began tllC distribution of fro:len foods , primarlJy the Bird' ;; Eyebl':lnd. In 1!H3 it acquired La Choy Pood Products Company, a l::llge manufacturer ofCbinc e food . It has since acquired a number of other manufacturers of food and re-Jnted products, including D. L. Clark Candv Co" D. Richardson Co. (mints), J\arioFood Products (olives and oil), Bond PicJde Company, Squire Dingce: Compan - (pickles

i\l)!l P!I.',pl' yps1. Lutz & ScbT"amm (pield",s ann 'Preserves), Bro'\o. :\lilcr (p:cl;:es :wu pre-

('n'(;), Shedd-Bartush (margarine), Tasty Foous . Inc. (potato ('hips), G"blwnH CbHiPo'\ uer Co. (:\Iexican food;:), :\litchrJj SP'lJI) find l're eI'' e Co. :\1. I. H'llJ()W r ,\; C,).(cac:uJ' ), ROSiuita ?llf'xknn F()Ofj . and _-\d'1m Cor)) (snack: foods). ),on" of tl1(' e 11(111-

di,i;'y :lcq!ljitions is dwJJengerJ in tJje cOllpJllint.

3i0- i1-

-- -

698 FEDERAL TRADE COl\r-nSSIOX DECISIO::S

Opinion 7 F'

continued during the 1950 s. Between 1951 and 1961 it acquired 17;)dairy concerns; these are the acquisitions challenged in this com-

plaint. The bulk of respondent s $117 million sales increase betweenHLH and 1D61 can be traced dil'cctJy to the companies Beat-rice .lC-quirecl in this period; and sales frOln plants aequired during the.1950' s represented some 36% of Beatrice s total sales in 1961.

Respondent' s pre-1950 acquisitions had established it as one ofthe nation s largest dairy concerns , but with its strength concentratedin the mid west. Respollclent:s post- 1aJO tcquisitions made it a genuinelynat:l)lc11 concern, doing bU81nrs.'3 in 37 states (and the Dist.rict nrColumbia), extending from ::.fassachusetts and Alabama, in the e'-

to California and Hawaii in the west.Before 1950, 90% of respondent's fluid milk had been processed

and sold in an area extending from the Appalachian :Mollntains tothe Continental Divide , principally eomposed of eight midwesternstates-Ohio, Indiana, Illinois , Iowa lissouri, :Nebraska, Kansasand Oklahoma-and portions of western Pennsylvania and east.ernColorado. The area, of dist.ribution of respondent' s ice cream andother frozen products was similar , but slightly wider, 80% beingaccounted for by the eight-state fluid milk area" ,Vest Virginia , andcertain counties in Pennsylvania, Virginia, Tennessee, ICentucky,

South Dakota , "Nisconsin finnesota and Arkansas. Sixty-three ofrespondent' s 175 post-1950 dairy aequisitions wcre of fluid milkfacilities loeated in respondent' s traditional distribution area, and(;9 of iee cream conceTns located in its traditional ice cream areft.The remaining acquisitions , however, senyed to broaden responclent:marketing area. By 1956 , respondent had plallt.s in 29 st.ates and the.District of Columbia, and sales branches in eight additional state.3.

Rcspondent now produces a full line or dairy and related produc.tsincluding butter, eggs , poultry, ice cream, ice cream mix , ice milksherbet, 1\1:e1101'ine, water ices, milk, cream , buttermilk, skim milkchocolate milk, bulk surplus milk , cheese, cottage cheese, condensedmilk, powdered milk, rruitade, oleomargarine, frozen roods rind

specialties. Its products and sales activities are organized alongdepartmental lines , including- the following: Butter and Butter

. As of .Aug\J t 31 , 1956, respondent operated Dne or more dairy plants in the Dis1r;('tof Columbia and the folJowing states: Alabama, CalifDrnla, Colorado, Georgia , H:,"wi1iL

Idutlo, Illnois, Indiana, Iowa, Kansas, Kentucky, 11aryland , 1Iiehigan , 11innesota. )Iisouri , :\lontalla, :Nebraska, )Jew :\Iexico, New York, North Carolina, Ohio, 01,bh()I li1

Penllsyivania , Tennessee, Texas , 1:tah, Wisconsin, VI' t Virginia and \Vyoming". In od'.!-

tion, it operated sales branches in a number of these states and in eight addition:,1states: .-\rkansas, ::lassachusett , )Jew Hampshire, New Jersey, Oregon , Rhode Islam\,South Dakota, and Virginia. Since AUgl1st 31 , 195(). respondent has aCCluirf'l the pl:c'Jtof a company in Arizona.

BEATl-nCE FOODS C01v1PANY 699

473 Opinion

Byproducts , Eggs and Poultry, lee Cream and JIix , Fluid !1:lkOther )ianufactured Dairy Products, and Other Sales and Services.

Hesponclent' s principal brand is " Ieadow Gold:' ; it is used onbutter, ice cream products and fluid milk throughout respondent'marketing area. Respondent also manufactures and distributes icecream products under 44 other brand names, and fluid milk productsunder 28 other brand names , in one or n101'e states. These brandsa1'. principalJy those of acquired companies. In addition to product

a.nd geographlc c1i,'el'sification in the dairy products field , respondentas has been mentioned, enjoys further diyersification in the foodindustry. At least a07Q of its sales are of groceries othpr tha,n dairy

products.The 175 acquisitions made by respondent since 1950 and challenged

in this complaint continue a pattern of grmvth through acquisitions\\' hich respondent has followed sill( e 1028. This patteI'll is character-ized by expansioll into new geographic area.s through the acclllisitionof companies having large, modern ma.nufacturing or procc3singpla.nts, followed by acquisitions of competitors of the acquiredfinns , thereby incre.asing the volume of the originally aequired plants.For convenience of reference "e can reg-fuel mergers of the first typeas "geographic market extensions : and mergers of the second type

as "horizontaJs. ::;; Yi1'tual1y an of the post- 19i50 horizontal ncqui-siUons "ere preceded by market-extension acquisitions , and in manycases post-1950 market-extension acquisitions have alrea.dy been 1'01-

;. ;'

A horizontnl merger. n8 ordinarily- l1nder tood , is one betwf'en finn" that t!flke orsen the same product. or prodl1ets which are c1() e ;oulJstitlltes for each other. 1101;'e,ernnles" the firlls nctunll." operate within the same geographicnl m:ul.et. the merger win11nve no immediate irnpnet npon the market shure of the lC'l\liring firm- the lJi11markof a conventional horizontal merger. ""here the merger invo:,es companies selling indifferent geographicfil markets (or . whnt rnfi Y amount to the ::nmc thin!:. to (lifff:rentcustomer classes, cf. ilj' ilo Mfg. Co. C. Docket 6::57 (decided (Jnnnary 17. 19f;-1))(IH F. C. 245), we have wbat has been termed a market-extension mer!:cr. See Fore-most Dail'ieg, Inc., C. Docket 6495 (decirled April 30. 19(;2) fflO F. C'. !H-!j. It

may be a merger in which the acquired firm sells the same prouuct a;o the acquiringfirm and is It prospecth' e entrant into the geographieal marl,:ct occupie(1 by the acqujrjn;:firm. See United States v. El Paso Naturr,l Gas Co. 1962 CCH Tradf' Cnses ,0,),1\D. Utah), prob. juris. noted. aT:; 'C. S. 930: FOi emost Dairies fill'. supra pp, 4.'-4!)(nn F.T. C. 1(IS7-10,"S). Or tile acquiring firll lJ11 ' be a pro\'pccti"lc clltrant into thewnrket of tilE aC(Jl1irf',j firm. Fornno8t DnIdes, Inc. , snpra Pl!. 4\)-CiO (eO F.T.C, lOSS.10Sg). '" '" '" Another variant of the conyentional borizontal merger is the merger ofseIlers of functionally clo"ely related products which lJle !lot, how e,er , close !'l1h!'titntes.This may be caned 11 product-e;'tension merger. P,' octer

((

Gamble Co.. C. Docket

6901 (decided :\ovember 26, 1963), pp. 14,15 (63 F. C. 146:: , 1 ,42- 15-t::n. It shouldhe empbasir.ed that these definitional distinctions are for convenience onl Tld '; importno legal distinctioIls under Section 7. Ill. p. 21 (63 I" C. 1547). Inr1f'ed , these cate-

gories are sometimf's ;:0 loosely defined as to become meaningless. See , e.!!. Ade1rnnn.

Maj.ket I8s!les: An Economist's View in The Impact of Antitrnst on Economic Growth25. 34 (Transcript of Taird Special Conference on Antitrust in an Expanding- Economy.

Kat!. Ind. Conf. Bd . ::larch 5. 1964). Regardless of the nomf'nclatlJre used , the legalte"t of aIlY merger or aC(jIJisition chalIenged under Section is the same: whether itJ!u.'' snustantially It:s ,,n c'omfJetition 01" tend to cl'eatE' a monopoly. See p. 26 (p. 715l:erclnJ, infra.

700 FEDERAL TRADE CO::1MISSION DECISIO: 'rs

Opinion CT F.

lowed by horizolltaJs. In many instances , moreover, market-exten-sion acquisitions have been followed by acquisitions or small dairyfirms located and operating just outside responclent s markets , therebyexpa.nding the nHtrket or the originally acquired plants, as "ell as

increasing their vohune; in all such cases the plants or the smnJler

acquired companies were closed and their locations became distribu-tion bra,nches for the main plant.

While the largest number of respondent's post-1950 acquisitionsinvolved relatively small dairy concerns, 32 or the acquired com-

panies had annUll) saJes of at Jeltst $500 000' and 23 had sales ofmore than $1 million. The combined sales or the 32 acquired firmsamounted to 8129 million , in comparison to total combined sales foraJl of the acquired companies of $147.5 million. Of the 32 , 18 werehOl'izo:1tal acquisitions, 13 were market extensions, and 1 was bothmarket-extension and horizontal. In terms of aggregate sales bytype of acquisition , the breakdown of the 32 is as foJlows:

--_. ---

Agf"rcgate 1-crCClltU2CNU':1brr sales of ag rPgat(J

(n,iJions of salesdol1ar

25. G )9.54. 42.49. 38. a

128. 9 100. IJ

--,--.-

HorizontaL- - - -- - -- -- - - -- - - - -

- - - - - - - - - - - - ---

:rvlarket extcnsion

--___ - -

::lnrkct extension and horizontaL_

___ ---

Total-

- - -- - -- -- -- - -- - ----- --- --- ---

Thus, of the larger chal1enged acquisitions, almost one-quarter interms of aggregate sales were purely horizontal acquisitions and42% purely market extensions , while one acquisition- largest

involved both market-extension and horizontal aspects and repre-sented 38% of the ag-g-regate sales of the 32 principal acquisitions.The Commission s complaint challenged 77 of respondent:s post-

1950 acquisitions as unlawful under Section 7 of the Clayton Actand 98 as unlawful under Section 5 of the Federal Trade Comnlis-

sion Act. After extended proceedings, the hearing examiner issued

an initial decision dismissing the complaint except as to five acquisi-tions challenged under Section 7:

For txampJe: (1) Creameries of America (Idaho Crcrnnerie;,) followed by the acqc::-SitiOD of B lker Union Cooperative Creamery in Oregon; (2) Creamerie of AmericCL

(Dairym(m s Association Ltd. ) foJJowed by the aCrjuisitjon of IJRhl-Cro-:1:Ja Ltl1. in Ha-waii; (3) Creameries of America (Prices' Creameries) followed by the .1cquisition of

Le;,ter Ice Cream Co. in :cew :1fexico; (4) Creameries of _\lleric.'l (Arden Sllufreezc)followed by tJ1e acquisition of Yellowstone Dairy in W omiDg; (5) Boswell D;1j ies. I:1C.

:t'ollowed by the acquisition of Palestine Creamery in Texa;,. (0) Durham DD.ir ' Prod-

ucts, Inc. followed by the Rcquisition of Durham Hoad Dain. in Drth Carolina; (7) Rus-

sell Creamery Co. followed by the acquisitions of ValJe"' Creamery Co. and Excel IceCream Co. in :\(innesota.

; The 32 acquisitiollS are Jistpl1 in the table on p. 701 infra.

'ilL)

Comp ;lY

BEATRICE FOODS COMPANY 701

Opinion

Annual sales Type of aequisitio,(

----

Creameries of America, Inc_

__--_--

------ $4g , 000, 000

Durham Dairy Products , Inc- - - - - - - - - - -Greenbrier Dairy Products Co-

- -

Community Creamery - - - - - -

- - - - - - - - - - --

Dahl-Cro- , Ltd

_- -- - - - - - - - - - - - -- -- -

, Ei44 000, 483 , 895, 302, 829

119, 000

l\Iarket extensionexcept in Cali-fornia.

1'vrarket extension,Horizontal.

Do.Do.

---

The hearing e.xaminer ordered respondent (1) to divest itself of(';1(h of the five companies , including such "after-acql1ired ' a.ssets

as necessary to restore each of them as a going concern and eiJectivcccmpetitor in each of the basic product lines in \vhich it "\vas engagedas of the time of acquisition; and (2) to cease and desist for tenyears from all future acquisitions in various da.iry product- lines'Tithout prior approval by the Commission.

Company

Campa.nics wdh anmwl sales of $500 000 or over acquired by Beatrice, 1951-

Location

1. Cr!':!:11eriesofAmel'ica_

2. Wcstcrvi:le Creamery-. Boswell Dairies

_--

4. CJo,erCreClmery_

____---,, .

'ledo- Land Creamery--Ii Assoc, Dairy Products_7. Greenbricr Dairy Products_f'. D:liryUmd Farms and Valdair

Crearncry,r, Louis Sherry, Inc--

JO. Tro-Fe Dairy, Ine_11. !llodel Farms Dairy--1:2, Hu sen Creameryoo---

D. Community Creamery_

14. DothanIcc Cream Co'i. E kay Dairy Co

_-----

Hi. De1vicw Dairyu_---

17. Covalt Dairy_JS. C1arksburg Dairy--___

--.

1(J. Durhlim Dairy Product.

---

20. BilingsDairy__

- -

21. Sanitary Milk and Jce Cream Co-22. Bluff City Dairy - -- -2:1 Honne Dairy Products_-24. Twin Valley Products--2;;. .iIrlvern-FusseIl (Arden Farms)-20 Linwood Division (Arder: F:rrms)27. Kentucky Ice Cream Co-28 Priuceton Creamery__-

201. Pioneer Dairy--3(1. CentI'IDairy--31. Valley Creamery CO32. A, L. Brumund CO

___-

Annual sales Type of acquisition

------ $4\. 000 000 .:Iarketextemionexcept in California.

Califomiu, Hawaii , Iri:i'oVtah , New Mexico , TexasColorado.

- Westervile , Ohio.Ft. Worth Tex.Roanoke Va.

---

-- Eugene, Oreg.

- Gler.dale, Ariz,- Beckley, W. Vf!.

u Opelikfi and Shamnt, Alfl

820 412 .:farketeJ;tensionI60 907 --- dom--8U2, 321 --- oo--_200 000 -

--__

do--947 526 -oo_ do_483 89,; Horizontal- -300 000 MarketextemiOIl

242 OOD Horizontal_____- New York City,95' 067 -- do--

-- -

- - Gadsden Ala.795 700 .:larket extension-- _- Louisvile , Ky.697 464 -- _

---- -

_oo _n Brainerd Minn, andSuperior , Wis,

302, li29 HorizontaL_ - Missoula , 110nt.150 953 Market extension-- - Dothan , Ala.Ill OOO do_ --oo- -- - Ft.'Wayne , Ind.960 990 -- __

___- _-_

Tuscaloosa, Ala,u8I 591 --do--

--

- -"lunde , Ind.636 410 Rorizontal_ - - Clarksburg, Va,

, .54 , OD() Market extension - - Durham I".540 039 HorizontaL- - Bilings , .:font.50IJ 87Q.- _

. -

, Morgantown305 423 -- _ 0.0

- -

- ITrmni1Jal :Mo.138 577 _do-- - Bntte, Mont,!J3 876 -

-. _

cio_ - Emporif! , Kans.870

, ,

,77 -

__-- _--_ --

- Alexandria , ValiH 965 - do--

_-

- Kansas City, .:10.830 813 _do-- Riehmond , Ky.735 604 - 0.0-- Princeton , Ky.687 571 - do-- Great FalJs, lont.559 866 -

----

do_- -- CoJumbifl , Mll533 834 _-- do_noo__u- n East Gnmd Fork , :\finn,500 000 - do_

-- -

_u_--- Waukegan IlL

702 FEDERAL TRADE CO:.1\lISSION DECISIO!\S

Opinion 1')7 YT.

Both parties have appealed to the Commission. Respondent chal-lenges the hearing examiner s findings of violation, wit.h the excep-tion of the finding that the acquisition of Dahl- Cro-:Y1a violatedSection 7, and his order. Complaint counsel urge that the hearingcxamineT s fIndings and order should be broadened in two respeets:

(1) To include a finding of ilegality under Section 7 of the Clay-ton Act and order divestiture with respect to two of respondentflcquisitions which the examiner concluded \vould have been unlawfulhad the acquired companies been engaged in commerce to a sub-

stantia 1 degree. These were:

--- - ___ . -

Company Annual sa\c Tnw of acquisition

- - -- --

Clarksburg Dair

A1"sociated Dairy Product.,,__

--------

636 410947 526

HorizontaL::larket extension.

---- - '

(2) To include n, finding that six other acquisitions of rcspondentviolated Section 5 of the Federal Trade Commission Act. Complaintcounsel do not, however , recommend divestiture or other relieJagainst these particular acquisitions. Four of the acquired firmswere not engaged in commerce; two were not corporations. Theexaminer made no detailed findings as to the effects on competitionof these acquisitions. The acquisitions were:

Company Anllualsah' Type ofacquioition

--- - --

Bilings Dair

- - - - - - - .. - - - - - - - - - - - - - -

Sanitary 1\Jilk and Ice Cream Co-Bluff City Dairy_

___ --------

Eskay DaiTv Co--

------- ---

John Costcllo Co_

Clover Creamery___

--

, .540 , 089, ;300 , SiB, 305 , 42:3

111 000

, 892 , 321

Horizontal.Do.Do.

:-Iarket extension.

Horizontal.?-Tarket extension.

--'-. - - - - - "- -.

,WJiile t!Jerpcord contajnsllDsaJesngllres.produ':tio' l ftf'llrcs: ti 855 gallons of ice crea.m;Whip.

Cost('jlo s oales WHl' cl('flrly nl1st ntial lo sho'l,;n by tile13:?.'S, units of cottage rlw sl': :Jnd 40 68S units of Hrdd.

The folJO\ying tabulation gives some idea of the pl'esent postureof the case in terms of the 32 " largen (more than $500 000 in sales)acquisitions, The hearing exa.miner found four of these acquisitionsillegal , il1Yoh- ing S5G minion of saIl's : or somethilJg more than

nr rhe $J:2D miJJion of sales for the :32, chaJJcnged acquisitions of largeC'Olh'(' )'1S. If complaint counsel's appeal YH:re to be upheld. the sales11!:. \J' C' oJ i1Je al acqll:sitions ,,"auld rise to 87;) milJiol1 , or 3S::; , of t.heSl:?S1 millioH.

BEATRICE FOODS COMPANY 703

473 Opinion

Type NumberAggregat.esales

(millionso!dollars)

Found i1c!,sl by hearingexam1ner

umbe!AggrcgatesaJes

\milliOlJsofdollars)

HorizontaL_- - -

- - - - -- -- - -

::Iarket extension

_-- - - - - - - --

::LHkct ext.ension and horizontaL_-

S. 6

54.

49.

" 2

1. 549.

Total

______---

128. 9 " 4 956.

Apveah d by complaint Hearing examiner counsel plus appealed Percent of

Type aggregateAggregate Aggregrne sales

NUJI- sales :;um- sales challengedbCI (miliOll bee (millions

of dollars) ofdoJlars)

HorizontaL_- -

- -- - - -

'" 4 I!. 46.l\Iarket cxtcnsionn

----

13 0 14. 26.::b,rket extension and hori-

zontaLn - - - 49. 100.

TotaL__- 10 19. 75. *58.

\ One smaller horizontal acquisition with "lI(J O(J() s iles was aJso found ilegal.

, ,

\J.oo, one other hOl';zontal aClluisition was appealed for \\ hich dollar saJes are not in the recDrd.\'Ierage.

The Commission brings to the consideration of indiyidllal casesaccumulated knowledge and experience, often acquired over a

period of many years, of an inclustris competitive conditions.Such knowledge and experience, which may be found in economicreports or studies conducteel by the Commission, in the record of

prior cases, and elsewhere,ll is particularly valuable in a mergercase where an informed and expert judgment of probable competi-tive effects requires an understanding of the economic context ofthe, merger which may be diffcult to obtain from a single record.TIle economic context of dairy acquisitions has been illuminated bynumerous studies and reports of the Commission 12 as well as by the

1: Cf. Republic A'li.atiQ11 Corp. v. La, bor Borl/' d. 324 U.S. 793: F(Jemo. t nairies, I11c.60 F. c. 944 , 1097 (separate opinion) ; Naneo Watch Strap Co. 60 P. C, 495.

'"

Report of the Federal TnHle Commission on the Sale anrl ni8tri,bution oj Milk75th Cong. , 1st Sess. , H. Doc. o. 95 (1937) : Report of the FederaJ Trade COm1li. 81:on

11 the Merger MOJ;ement (1948): Fedrl' al Trade CDm.mis ion Report Oi/ CorporateJlerrlers and Acquisitioll. (1955): JI-il. anrl Milk I'roduct8. 1914- 1918 (HJ21): Hearingson the Sale (/,nrl Distribu.tion of Mnk in CsnnecticlIt nnrl Philadelphia, (19.'35): InterimReport With Respect to the Sole and, Di8tribution oj MlU, and Milk ProdllctlJ (If!3fi):Report on the Distn'blltion and Sale of Milk f/,nd Milk Products, Boston. BaltimoreCincinnati, St, Louis (1936); Report on the Sale and Distrib11tion of Milk and MilkProducts New York Sf/lei! Area (1937); Report on the Sale and Distribution of Milk011U JI-lk Products in Connecticut and Philadelphia Milk Shed. (19::5).

704

);"

EDER/I.L TRADE COMMISSTOK DECISIONS

Opini(!1 G7 1". 1'C.

records in 11arge number of cases involving a variety of e01lpetitiycpractices, especially price discrimin:ltion, by dairy comp,tnies.:Mergers in the dairy industry have been uncleI' particulal'ly close

scrutiny by the Commission for the past quarter century. The Corll-mission issued reports analyzing dairy acquisitions in 1937, 1D48.

and 1955 14 and in 1956 issued complaints-of which the complaintin the present case is one-chalJenging the legality of a large numberof acquisit.ions made by each of the four leading dairy compa,nies.A brief review of the Commission s prior merger cases in the dairyindustry wil help to place the present case in its propel' perspecti,-

In Foremo8t 60 F. C. 944, the eomplaint challenged a large

number of acquisitions of dairy companies made by respondentbetween 1951 and 1955. The eumulati ve result of the elmllenged

acquisitions was to transform Foremost from a medium-sized dairyto one of the four national leaders, with total sales in 1955 of almost$400 million. The Commission s final order, requiring extensi, e di-vestiture, was appealed by respondent to the United Stat.es Court ofAppeals for the Fifth Circuit. However, on November 23, 1962, all

further review proceedings \"ere, at the parties ' reqnest , sta.yed bythe court to permit a practicable program of divestiture to be workedout. Subsequently, a plan of divestiture was agree,d upon, the COlll-

mission s order of divest.iture modified accordingly, and the litigationin the eonTt of appeals terminated. The modified order (issued March, 1965) requires respondent to divest itself of the milk, frozen

dessert, and related assets located in its southeastern and north-eastern regions , including the assets formerly owned by PhiladelphiaDairy Company, as well as two other properties located in ot.herparts of respondent's marketing area. The order also prohibits 1'e-

See, e. United BuVerb' Corp. 34 F. C. 87 (price di crimination) : Barlucr-Brndil(!,ulChee8e Co. 31 F. 1017 (price-fixing and monopoIization) ; CGnwtion Co.. (Hi

1274 (exclusive dealing) ; Independent Grocer. Ania11ce Di8tTibution CO. Y. C"

2d 941 (7th Clr. 1953) (price discrimination): Borden Co.. 54 F.'r. c. 563 (pricediscrimination); Nat,tonal Dairy Prod1U;t8 Corp. C. Docl,et 7018 , complaint 1 f'JedDecember 31, 1957 (pending on appeal before Commission) (price discrimination):Borden CO. V. 339 F.2d 133 (5th Cir. 1964) (price (li crimination) : Foremogtnair1 , bec., C. Docket 7475 (decided Ma:v 23. 19(3) ffi2 F.'I'. C. 1i'441: Bon/en('0. . F. , 338 F. 2d 953 (7th Cir. 19(4) (price discrimination!: Beatdce Food. Co.

C. Docket 7590, complaint issued September 28. 1959 (per-ding- on appeal beforeCommission) (price discrimination); Dean Milk Co. C. Docket 8032 , complaint

issued June 30, 1960 (pending on appeal before Commission) (price discrimination) ;find ca!:es cited in note 15, infra.

'l Repm.t of the Ferleral Trade Commission on tile S(!le anlf n striblltil)J1 of JUTk. note. Sllpra; Report of the Federal Trade Commission on tlie JIerqer Jfol.ernent note 12

s!lpra; and Fedel"al Tnlde CO?n?ni8sion Report on Corpora-tr JIe1.ger. (lnd Acqui8itions

note 12 Rupra.l1 Forem08t Dain:eR, 1'7c. C. Docket 649:i, 60 P. C. 944: Nationnl Dairy Pr'Jdllcts

C01")1., C. Docl,et 6651 (62 F. C. 1201 Borden Co. C. Docl;et 6652; am; thepresent ca

BEATRICE FOODS COMPA.'I 705

OvinioIl

spondent , for a. period of 10 years, from acquiring without priorapproval by the Commission any company engaged in the manu-

facture, processing or sale at wholesale or on retail milk routes offluid milk, ice cream, ice milk, l\Iellorine , sherbet or water ices.The divested properties represent some 30% of Foremost's totalsales in 1962, and about 36% of the combined pre-merg-er sales ofthe acquired companies.

The N atl:onal Dairy case presented a somewhat different factualsit.uation from Foremost. Although National Dairy had acquiredsome 600 dairy companies prior to 1951 and had thereby est.ablisheditself as the leading firm in the nation in the fluid milk and frozendessert industries, after the passage of the Celler-Kefauver merger

law its pace of acquisition, in sharp contrast to Foremost' , slowednotably: Only 2 of the acquisitions challeng-ed in the Commissioncomplaint were of substantial firms. The LV ational Dairy proceedingwas terminated by t.he entry of a consent order on January 30 , 1963(62 F. C. 120). Divestiture of both substantial acquired firms , whichbet'\ycen them accounted for 320/0 of the combined pre-merger salesof an the acquired companies, was ordered. In addition, a 10-yea.rban on future acquisitions , similar to that in the amended Forerl1ostorder, was imposed.

Like National DaiTY, the Horden case presented special problems.

While a larg-e number of acquisitions made by Borden between 1951and 1956 were challenged in the complaint, many of the acquiredcompanies proved to be too unprofitable for their restoration as

viable compet.itive fadors to be practicable. I-Iowever, by consentorder issued April 15 , 1964, Borden was directed to divest. 8 of theacquired companies, representing some 23% of the combined prc-merger sa.les of all the acquired companies. The order also cont.ainsa lO-year ban on future acquisitions similar to those in FOTe' lnostand lVational DaiTY.

The Commission s prior proceedings involving dairy acquisitionsare. pertinent to the consideration of the present case in several re-spects. First , they suggest the practical diffculty of unscramblinglarge numbers of acquisitions in the dairy industry made over a longperiod of years. These practical problems of relief mllst be bornein mind in fashioning any remedial order in this industry. Second

they indicate that the problem of acquisitions in the dairy industry isindustry-"\vic1e. Not just one but several of the leading firms haveembarked on extensive programs of acquisition. The Commissionhas not singled out anyone of the major acquiring companies forremedial action , but has proceeded on an even-handed and equitable

706 FEDERAL TRADE COMMISSION DECISIO

Opinion Wi VT.

basis against an. Recognizing an industry-wide problem , the Com-mission has attempted, so far as possible , an industry-wide solution.The nature and dimensions of the dairy industry's merger problemcan only be understood in terms of the economic structure and dy-

namics of that industry, to which we now turn.

IIIThe evidence in this case discloses that eight large dairy com-

panies have made a total of more than 1900 acquisitions since 1905(505 between 1951 and 1961 alone), a record which led a Congres-

sional committee staff report to note that " (cJlcarly, the most merger-prone industry has been dairy products. " 16 Vlhat is the esphma-tion for this phenomenon To understand it, we must rcvic"\y briefly(1) the structure of the industry, (2) technological and market fac-tors afl'ec6ng its structure, and (3) the nature and extent of themerger movement in the industry.

The dairy indllstry today is composed of a few very large nationaland regional concerns and a large number of very small ones. In1959-1960 the total sales of the eig-ht largest national and regionaldairy companies were as follows:

f:al('.Company'

atiollal Dairy Products Corporation -----Bardell Company ---

---- ---- ---

Beatrice Foods Company --

---------

Forp.rnost Dairies Company - ____n_.____-----Carnation Compllny --

-----------

Arden Farms Company --

--------------

Pet ::Iik Company --

--- _--

n--_un__----_u_Fairmont Foods Company - --_____--n_-

(thO!lsnnd-607. 170H5ri.Ol-i

443436. 981417. f):?Ci

3f).UJ8t3195. 038

97, :W:'

17 4 G78, 182.

16 Statl of H.R. Select Corom. on Small Bu iness Merg€/$ nnd Supel.co/!centl at'on-Acquisitions of 500 Largest Indust1"a,1 and 50 LrlTgcst Mcrclw,nrUsing Finns o\"

1962, 87th Cong., p. 26.17 These sales figures reflect the total volume of sales activity of the principetl J,jir:v

companies, not onl " in the dairy busineM;. blJt in a variety of other areas of eC01HlInicactivity in which they are engaged. For e ampJe, ational Drtiry Product Corporntionhas grown " into a great international enterprise with II broad and yarjed line of qualityfood product . , , operating about 500 processing, manufRcturing and distributingfacilities in countries around the world, ana exporting from In:ln ' of the!'!' loC,1.tions

to other lnnds," (!\ational Dairy Products Corp. Annn111 Report. 1963. p. 3). Tile !,redent of ationaI Dairy expounded on the company s position in the report of thoc ')lbAnnual :\feeting- (April 1G, 1!J64 , pp. 6-7) as follows:

And !'o, from just two proaucts ill 102, '3, we no,,' proce, s jellies and prc crycs in XewYork State. nnd Vegemit in AnstraJia- wc turn Ollt citrl1f' lJroflnctf' in Flori\Jrl. et!llmanufacture cream cheese in England-we refine ClIjblc oils in Tennessee. and makemayonnaise in :\!exico-we packag-e cano - in I nrJian:J , amI bottle 'ketchup II) ;VestGermany-we make peftnut butter in Canaaa. ana salad prod\1('ts in Ycnczllpi:1- lmlon and on, ncrDS!' :1 wiae range of fDofI prortnct aUf1 Rcross milD \" geo,:rnphical :Irea'o.Bea1rice i'o similarl " diversified, See)1. mH. n01e,j, 8111)/fi.

BEATRICE FOODS COMP A 707

473 Opinion

There is considerable size disparity among the eight largest com-panies. The sales of l'ational Dairy, the largest , are approximately60% greater than those of Borden, the second largest. The thirdfourth , fifth and sixth largest dairy companies are about OIl a parwith each other in total sales, bnt each is only about one-quarterthe size of National Dairy and less than one-half the size of Borden.In terms of total sales ationa.l Dairy is 17 times larger than theeighth largest.

The largest proportion of sales of most dairy conlpanies is in twocategories , bottled fluid milk and frozen desserts. The share of totaldomestic shipments of these two products in 1958 of each of the

Jargest companies was as follows:

FJuid 1\Jj'Bordell_

- - - - -- - - -- - - - - -- - - - - - - - - - -

NaUonal- - - - - - - - - - - -- - - - - -

- - - - - - - - - - - -- - - - - - - - - - - - -

Forcmost_

_- - - - - - -- - -- - -- - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - -

Beatrice__

---- --------------

(:arnatioIl- - - - - - -

- - - - -- - - - - - - - - - -- - -- - -- -- - - - - - - - -

Frrcrn/'

A.rden_

---- ---------- ----- -----

fJ.

. :

1. 4

O. fj

FairmonLPeL -- --

------ ----- ---------- ----

Total_

------ --- ---

Frozen Desserts:Nat.ional

- - - - - - - - - - - - - - - - - -- - - - - - - - - - - - - - - - -

Bordcn

___ - - - - - - - -- - - - - - - - - -- - - - - - - - - - - - - - - - - - - - -

Forernost_

- - - - - - - - - - - ---- - - - - - - - - - - - - - -- - - -- - -- - -- - -- - - -

Reatrice_

---- - - ------

S,vift_

---------- ---- -------- - -

Carnation- - - -

- - - - - - -- -- - - - - - - - - - - -- - - - - - - - - - - - - - - - -- ---

-\rdcl1

------ --- - - ---- ----

FairIllOl1'L_

- - -------------- - - ---------

:n.

Pct--

-------- -----------

J:l10. G

4. 9

2. 1

1. ,:

Total_____

_------- --- ---- ------------------ --- ---

44.

The great majority of dairy companies after the leading eight

are very small. In 1961- , only 731 of the 7 176 fluid milk plants inAmerica had an annual volume exceeding 5 million quarts. To putthis another way, 9 out of 10 fluid milk plants had an annual yolumcof Jess than 81 million. ,Vhereas the eight Jargest companies aver-

n.god 4.0% of the ",due of shipments of fluid milk and 5.5% of thev,11u8 of shipments of frozen desserts in the United States, the r8-

JF Since 95% of all (lairy com1Jnnie nre singjc-unit operations, the nmnber of pj,wtsfloc!: not ,;el'iously over tate the Humber of companies in tbe fluid milk and frozenc1('ssert industries. See J,(ltllre of Competition in Plidd Milk JI(lJ"kcfs: JIf!rl.'ct Orgnlli:'lion, (I!I/, Concentration (U. S. Dept. of Agricnltllre E('ol1. Ref). Xo. 67). PI!. fj. 4(j.

708 FEDERAL TRADE COl\MISSIO DECISIONS

Opinion 67 J

maining milk processors had an average of 0.01% of the value ofshipments of fluid milk, making the average national company400 times larger than the average remaining- milk processor. Since

the remaining frozen dessert manufacturer had an average of .05%,the average national company was 110 times larger than the averageremaining manufacturer of frozen desserts.

In 1958 the fifty largest companies had 45% of the value of ship-ments of fluid milk in the L:nited States and 69% of the value ofshipments of frozen desserts. The disparity in size between theeight or nine largest and even the larger independents is il1u8-trated by the fact that the eig-ht largest companies had 64% of theshare of fluid milk shipments held by the 50 largest companies and69% of the share of frozen dessert shipments held by the 50 largest.companies. In both product Jines, therefore, the 42 largest inde-pendents averaged less than one-tenth the share of the eight largestcompanies in fluid milk and frozen dessert shipments. 1:oreoverfe.wer than 50 fluid milk companies have annual sales or as muchas $15 mil1ion, and only 45 fluid milk corporations have assets of

more than $:' miJlion. Clearly, the vast majority or all dairy com-

panies are very smal1.: Only a handrul can be regarded as medium-sized or large.

Since the marketing of both fluid milk and frozen desserts is pri-marjJy on a local or regional basis, the national sales figures sub-stantially understate the degree or concentration in the actual dairymarkets. In local markets concentration is very high. This is true

regardless or whether market boundaries are drawn about particularcities or broader geographic regions. The four largest dairies typi-cally account ror well over 50% or total fluid milk and ice creamsales in the individual local markets "where they do business. It 103

not uncommon in smaller markets for as few as three producers toaccount for 75% of the sales, and one producer for 500/e. Accordingt.o a recent study by the United States Department of Agriculture(Nal1l1e of Competition in Fluid Mile Markets 1'. 8upm n. 18)

the flyerage market share or the rour largest sellers in 71 fluid milkmarkets was 82.6%. In small markets the four largest had 95%,and in large markets about 61%. Concentration is very high even

19 ?"atilre of Competition in Flldrl JHlk .larl,et, , supra; I.R.S. SO/fI'ce Boal.. of Statitics of 'Income

, .

-1ctive COj'p. Income Tax Ret1lTJt8, Jul!) 1961-b/nc 1962.D In 1958 , 75.9% of all fluio. milk plants were operated br ('ompnnies with totill s:lles

of lei'S than $700, 000, 8tHI 85.6% of an plants were opemted bv companies with snlr"of less than $1.400 000. Nature of Competition in Fluid Mil" Mal'kets, IWPra p. 52.

:.Of the larger firms, only 7 are regaro.eo. by the Dcprutment of Agricl1Jtl1re :1';nationnL nnd S as regional. All the rest are e entiallr locn\. Not/Ire oj Competition inFIJlid Jfil, lforl, cts. supra p. 6.

BEA'l' HICE FOODS CO:.1PANY 709

473 Opinion

if market boundaries are drawn quite broadly. Thus , -in 1957 justfive nationa.l companies produced 55% of all the ice creanl sold inthe State of California. By all tests concentration in the sale. ofdairy products is very high. See Frocte?' Gamble Co.Docket 6901 (decided November 26 , 1963), p. .12 & nn. 40-41 (63

C. 1465 , 1562J.

Notwithstanding the panunount position of a few leading firmsthere were at lea,st until quite recently, a relatively large numberof indepcndent clairies in most markets. As recently as 1950 there\vere 16 089 f111ic1 milk plants and 4- 202 ice cream plants , owned forthe most part by small single-plant companies (see note 18 S1lpl'a).

In the 1950:8 hmvevel' , the number of fluid Inilk plants declined bynearly 9 000, to 7 176 , and the number of ice cream plants rell bynearly 1 000, to 3 226. These substantial declines were in additionto those of previolls cleca,des. And, as we explain belmv, the highmortaJity rate among small dairies is likely to continue. Techno-logical considerations alone ll1ay cause the demise, within the fore-seeable futun , of more than one-half the remaining fluid milk plants.

vVhat is behind the drftstic and continuing transformation in thestructure of the industry 1 In the early decades of the twentieth cen-tury the dairy industry was highly fragmented. It was composed

0:1 many t.housands of rnall local1 . o YJlrcl entf'l'pl'i::es doing a localbusiness. Because of the perishability of the product, and because

many towns had ordinances requiring thnt the product be proc-essed in the town in ",-hich it was sold , the typical milk market wassmall and completely local in nature. Entry into the industry and

into particular local markets was easy, since capita.! entrftnCe require-ments were minimal and there were no substantial technological orother economies of scale.

Tith a. technology and economjc structure so suitable to localindependent , small-business operations , it is not surprising that thefluid milk industry in these early years consisted of a very largenumber of small producers serving separate, isolated t.own markets.Each locality had its local processors supplying- the needs of thecommunit.y. fany of them were producer-distributors farmerswho produced the raw milk and bottled it for home sale and delivery.Those companies that did not produce their own milk purchased itfrom local farmers on the basis of individually-negotiated con-tracts. Home-delivere,l milk constituted over 60% of sales , and theprice of milk sold in stores was usual1y the same as for home-delivered. Milk companies operating manual plants and se11ing un-

710 FEDERAL TRADE CO:\IMISSIOX DECISIONS

Ovinion GT T.l:.

graded milk in glass-filled containers on local home-delivery routescould operate profitably on 500 gallons a day.

A number of developments tended to break down the link be-tween producer and distributor. Among 1.he111 were the growth oflarger cities, the improvement of transportation (which permittedthe rapid shipment of perishable products for city consumption),

the invention of electrical refrigeration , and the widespread adoptionof pasteurization." These teehnological developments weakened the

position of the small independent dairy. Thcy also made entry intone\', ' markets much more diffcult for such dairies. yIoreovcT , begin-ning in the early 1920's and extending through the 1930' , and indeedon to and including the 1950' a va,st merger movement swept theindustry, as a result of which thousands of firms in the industrydisftppeared as independent competitive factors. It is impossible todisentangle the various root canses of the long-run decline in the

number of independent dairy firms. But this much seems clear.Technological change may have dictated the demise or absorptionof many marginal local dairy companies; it did not dictate the riseof vast, national , multi-plant dairy companies. That development isolely attributable to the merger movement , the character of which

was described by the Commission in one of its studies of mergers: (TJhe growth of STIch outstanding Xation-wide companies as XatioTIal Dail'Products COl'l. and the Borden Co, could he likened to an acquisiton itjtH'rary,sweeving across the country from ODe large city to another, and gatheringin its wal:;e hundreds of companir's se1'Yin;; small communities as well. During:the 2:2-year period , H)2J through 194:5, Xational Dairy Products acquired moretl1f\n 400 concerns engaged in the processing and distribntion of fluid milk , ice

cream , cheese , buttcr , and condensed and eVfl!Jorated milk.

LRJeginning in 192i, Dorden embarked 011 a broad and ambitous progTam ofdiversification and expansion tl1rollg1J aCfjuisitioDs, From that: elate tllloug:h19-45 , Borden Co, lJas bought no less tl1aTI 531 formerly inflependent el1tel'1lisl'sor groups of enterprises emiH'acjng al1 divisions of the dairy products industry,including fluid milk, ice cream, ('beese, butter, conoeJlsed and enljJor:\te.dmilk, milk byproducts, and miscellaneous other products,

:, "

It was not nlltil fift . ye,Lfs ntter it disl:o'E'r that Ih1Heui'zation ('nme to b1'COllmercial iWIJortance in the processing of milk. 'Ille initiathl' ('Dile from the c:tles.PasleUl"ization of milk WflS beguD in Cincinnati in 1897; in XI""" York, lSDS: InPhiladelphia, 1599; in St, Louis, 1900: in Cbicago, HJOS. A late as 1!H10 onl:" ;)percent of the milk consumed in Kew York was pnsteurized. But between 1000 :Hld1020 most of the larg-er cities took the pledge. In 1910 it was estimated tb 1t about50 percent of the milk sold in citkE' was pasteurized: by ) g15 the volume had incl' etl ellto SO percent. " Hamilton et a/., Price and Price Policies 455 (1!.38).

Co Report of th/5 Fn//5mI Trade Commission on the Jlc;' r;et Jloucl!cnt (1!J4Sj. pp. 37-3:S

BEATRICE FOODS COMPAjXY 711

473 Opinion

The geographic scope of operationwas described also (p. 38) :

of these two Jcading dairy firms

With plants located in all but G of the 48 Statt. :jtional Dairy operates ineyprS' part of the United States east of the Rocky )lountains, gathering anddh;t ibutlIJg fluid milk, and manufacturing butter , cheese , ice cream , evaporatedmil;;: , or other milk products. Sillilarl , the Borden Co. covers most of the

cOiJntry, distributing fluid milk ill H) States and manufacturing" ice cream in27 States. In addition, it operates lG cheese plants in 'Yisconsin fllld oillers inIllinois , New York, Ohio, and Tennessee.

TLc report pointed out that in ftchic,.ing such geographical covcrngprJle, leading dairy Finns had relied almost completely upon ll.cqnisitions.and also that most of the acquired companies with significa.nt mar-ket positions had achieved their positions by earlier mergers.

In the 1'051,- v orld W.r II years , the survival of the independent

dairy sector continued to be endangered by the combined effects ofte,chnology and merger. Sanitary processes were greatly improved.The Grade A ""lodel Code of the United States Public HealthService was almost universally adopted. Milk handling and pas-t.eurization equipment was vastly improved. Pa.cmging methods werechanged radically; an almost complete shift from glass bottes to

paper containers occurred and the half-gallon container emerged asthe most popular package. There was a rapid transition from ordi-niLl'Y pasteurized to homogenized milk. Proeessing and deliveryequipment was greatly improved , diminishing the perishability ofthe product and enlarging the geogra.phical scope of markets. Andsupermarkets came largely to replace home delivery as the major

channel of fluid milk distribution. All of these developments haTetightened the competitive pressure on the smaller producers andmade efficient operation an increasingly expensive proposition in thedairy industry. :Many of the smaller producers have not been able

to adjust successfully to the new technological requisites of effcientcompetitive operatjon; this helps explain the marked decline notedabove in the number of small fluid milk producers.

'In 1950 homogenized mill; repre ente(1 appruximately 50 percent of the eOD llmption:by 1862 virtually the whole eon l1!lption '\' :18 of this type. Clw1!ginl) l'ntterll8 -in PI, llirfJIi/1: nib' trilmtion (U. S. Dl'pfU"tment of . \gl'jeultul'e

, .

Al1g-ust 18;)1)); JIill, DistributorsOpcl"'tions (1.. 8. Department of Agriculture, Ko.ember l

; Set forth below is a table comparing the number of fluid milk plants in the UnitedBta es in ID;:(I.1951 with those in lfHJl-1962.

l\umiJer offtu:d T:lil" )da' I1.'i

---.

Yen: :-0.olumeli,tl'd

1"111('lnjio:l

r; u a 't Scl1ij!iollquarts

;"-

milJionqUilrts

OVl'rlOmil;onClU

Tot"l

1\1.30- 3L -- ;53;)

-:.

:'n 2\);) 233 16. 0891061- 8;:'1: 048 339 36fi 36fi 176Percent change +24 +57 ;'i;)

712 FEDERAL TRADE COM?lnSSIO T DF.CISIONS

Opinion Gi :r.

K or is there anything to indicate that in the future the high mor-

tality rate among smaJl dairies will subside. A fluid milk plant musthave a volume of at least 1 500 gaJlons a day if it is to utilize eco-

nomically the snmllest automatic paper packaging equipment. Thisdoes not mean an enormous plant is required; one able to processabout 1.5 millon quarts per year would suffce. But in 1961-1962

70% (about 4 900) of all milk plants had an annual volume of lessthan 1 million quarts per year " and another 20% had an annual

volume of between 1 and 5 millon quarts per year. One of respond-ent' s witnesses estimated that in 1960 there were only 1 098 inde-pendent fluid milk companies 27 in the entire United States whichwere processing- 1 600 gallons per day-and the technological mini-mnm-sizs plant may well be larger. Two of respondent's wit-nesses placcd the minimum at approximately 2 000 gallons per day.

These facts clearly portend a substantial decrease in the number ofcompetitors in the years ahead. ::1:or8over, even a firm of effcientsize may not be large enough to pcnetrate markets where the giantsof the industry are well entrenched. Barriers to entry have reacheda point where , it would appear, only a substantial firn1 can be reek-one,a a real competitive factor in this industry-and, as we have

noted , after the big- eight there are very few substantial firms. Themiddle tier of dairies is probably composed of few more than the50 largest firms, the smaller of whieh probably have annual saJesof only about $10 milion.

Similar technological changes have occurred in the ice cream 1n-

dustlj' during the post-war period. There has been a marked trendtoward automation in manufacturing and packaging. :Nlany plantsof wholesale ice cream manufacturers have become semi-automated.

e This figure Includes 1, 858 plants whose producti'-e capacity is unknowu. The recordIndicates, however, that pl:nts in tbis category consist principally of small plants wl1ovolume is so small that the trade association which compiled the above datf\ was unableto ascertain their volume.

:r He defined an independent company as any processor e:scept Arden , Beatricf

Borden, Carnation, Foremost, Fairmont, Kroger, National Dalr:\ Pet Milk , Safewll:"

Swift, and Hood.:1 Respondent argues that the number of "viable independent competitors " is increos-

ing becfLuse the number of fluid milk companies processing' 1 600 gal10ns per dal"llicreased between 1950 and 196Q-from 805 to 1 098. This reasoning Is spedol1s. It isnot appropriate to estimtlte tbe liumber of viable competitors in 1950 on the basis oftoday s technology; in 1950 smaller plants may well hn:re been viable compctiton.All respondent's statistics show is that wbiJe nearly 9 000 sman dairies disrontinllf'(operations during the 1950's, about 293 joined the over 1 600 gallon-per-du,- cll\and , of course, most of these remain of very modest size.

BEATRICE FOODS CO:MPA:\ 713

473 Opinion

Some plants have become fully al1tom;ltjc; in them as few :lS tllOemployees operate the entire plant by pushing a serips of buttonsat a central control board. Such equipment is expcnsiyc and requiresa certain minimum volume to be effcient and economical. 1Yhile therE' j.

dispute as to the precise dividing line between ': io.bJe :: and " l1Ilrgin l.rplants, the record indicates that inability to afford the requisitetypes of equipment, or to achieve suffcient v01ume to justify theirpurchase, have been significant factors in the demise of many smallfirms.

These teclmological changes of the 1950:5 were accompanied. by an-other wave (or continuation of the old one) of dairy mergers: Be-tween 1950 and 1961 , the eig-ht large national dairy companics-National Dairy Products, Borden , the present respondent (Beatrice),Foremost Dairies , Carnation

, .-

rden Farms, Fairmont Foods , andPet Thiilk-a,cquired 505 other dairy concerns, representing almost40% of the total number of recorded acquisitions by these top dairycompanies since the early 1900 s. Iany of these acquisitions haveinvolved relatively small companies; but a substantial number havebeen of significant factors in various markets, and , on an overall

national basis , the effect of the merger movement has been to in-crease the concentration of the bulk of the nation s dairy assets in

the hands of a few firms. In fluid milk, mergers added to the abso-

lute position of the big eig-ht amI produced a slight increase in theiralready substantial share of national saJes. In the mea,ntime, thetier of dairies below the big eight appears to have enhanced its rela-tive position (though at a slower rate than they would have hadnot their ranks been depleted by acquisitions by the largest dairieswhieh since 1950 have acquired approximately 10 dairy companies

2" There has been a !'ubstantlal decline in the number of ice cream plants since 195U.although the decline has nut been so great as that of milk plants. Set forth below is

a table cumparing the Dumber of ice cream plants in the L".S. in 1961-1962, witbthose In 1950-1951:

);u:mber of plants

Year ovolumcreported

Volun,elcl'sthan 250 000

gallons

VoluICPover249. 9galiolls

Tota:

1950-51- -

- - - - - -- -- - - -- --

1961-

-- - - - - - - - - - - - - - - - - ---

Percent changc__

__----

020520

- 49. 02

77' 411530

+28. g,

202220

23.

2. J7621. 51

379- 702--71--6

714 FEDERAL TRADE CO:;L\lISSIQX DECTSIOXS

Opinion 67 F.

with assets of $10 million or more), while at the Jmyer end of thesize scale great inroads werB made in the number of smnJl firms.In the frozen dessert end of the dairy business , mergers contributednot only to the absolute size of the big eight but also to a substantial

increase in their share of total proc1uctjon, from 35.0% in ID50 to39.2% in 1957.

The post-1950 dairy merger movement has in general resembledthat of earlier yeaTS. The top regional and national flrms have in-creased the multi-market scope of their operations through numerousmarket-extension mergers. But , at the same time, the fecent mergershayc broadened the multi- product character of the top firms. Notonly have they filled out their dairy lines; they have expanded theirbnsinesses into related food products of the type marketed to thesupermarket chains along with dairy products. The merger move-ment has thus enabled the leading- dairy firms to straddle manymarkets , to market a full line or dairy products , and to supplementtheir lines with other grocery products.

These are the cardinal facts which emerge from a revie\v or theeconomic structure and dynamics or the dairy industry: (1) Con-

centration has already reached formidable proportions in loe"l areas\yhich are the economically relevant markets in which to measurecompetition in this industry. (2) The prospects of survival for small

firms, and the conditions ror entry or new small-business competitorsinto the industry and its markets, have worsened. There are rela-tively few firms outside of the leading eight which can be rated asreally strong competitors uncleI' present market conditions. (3) Theleading firms have been embarked on an extensive and rar-reachingprogram or acquisitions , the result or which has been to increaseconcentration still further and speed the exit of the independents.(4) Xo showing has been made that these acquisitio11 (at least thosethat have taken place since 1950) were necessary for the leading

dairies to achieve the economies or scale made possible by the in-dustry's technological revolution, or that the acquired companies

could not have achieved such economies through merger with firmsmuch less powerrul , \yell entrenched, and geographically rar-flungthan the big eight.

In its express terms , the merger la\" proscribes any merger oracquisition invo1ving corporations engaged in commercc howevel'the merger ?e classifiecl, as horizontal

, \'

erticaL market.-extension

BEATRICE FOODS CO)':IPA 715

,173 Opinion

product-extension, or defying neat classification if its effect, "in

any line of commerce in any section of the country,

' "

may be sub-stantially to lessen competition, or to tend to create a monopoly.

I: See p. 699, note 5 supra. The legislative history I'effects the par-ticular concern of Congress Ivith the possible adverse competitivecHect of mergers that \fere Hot strictly "horizontaF in the sense ofa merger between companies actually competing with one another::t the time of tlw merger, but that I\cre, rather, geographical

market extensions " involving firms which, 1\hile they sold the sameproduct, were not actual competitors at the time of the merger sincethey sold in different geographical markets. See Forenwst DairiesInc. 60 F. C. 944, 1050-52. The Commission , in its Rep01.t on theMerger Movement (1948), on which the framers of the CeJler-I\:efau\Ter 1\.ct drew heavily, had given special emphasis to the dan-gers to competition posed by market-extension acquisitions, especiallyin the dairy industry Ivhere such acquisitions ere so common.

The example of Borden s market-extension ac.qnisitions in the dairyindustry between 19,10 and 1947 vms expressly cited in the committeedeliberations on the bill that became the amended Section 7. SeeH.R. Rep. No. 1191 , 81st Cong-. , 1st Sees. , p. 11 & chart I (1949).

A fundamental concern of Congress in funending Section 7 ofthe Clayton Act in 1950 was the effect on competition of concen-trating the business of a particular market. 01' industry in the hands oftea few sellersY In markets Iv11ere one 01' ft Yer)' fCIY firms control(1, large part of the total sales , there is a tendency for all firms to refrain:from vigorolls price competition. Each large seller kumys that if hema,kes an across-the-hoa.rd price cut , the inro (b on hjs major competi-tors ' market shares Iyill be so pa.lpable that they Ivill be compelled im-mediately to make a corresponding price C'nt aJld that. c01l5cqnently

"See p, 710 81Ipl-a, The Report stated (p. ;)T)

Typically, the firms which have fol1owed tbis pattern ha'le grown by buying upconcerns malting the same product in one or a fe\\ localities, strengthening their

posItion in those localities by adUltional acquisitions , branching out to obtain control

in otber localities, consolidating their local acquisitions into broad regional or districtnq;anizations, bringing into the fold leading companies in the major regions, and , by!Iis steady pattern of encroachment, becoming Xation-'\ide organizations with a sub-tantial degree of control in the Nation as a whole, a much bigher degree in man;" ofe important regions, and a near-monopoly position in Dl1mel'OUS individual locaiities,It is in such fields as dairy products and bread that thi type of merger activity

bas been pushed most vIgorously, In fact, the growth of uch outstnnding Kation-wide

companies as National Dairy Products Corp. and tbe Borden Co, could be likened toan acqtlis!tion itinerary, sweeping ftcross the country from one large city to anotherftnd gathering in its wake hundreds of companies serving small communities as well.

:1 See Brown Shoe Co-

y,

UnUed States 370 U, S. 294 , 315: S. Hep. o- 1775 , Slst

Crmg, 2\1 SroSs. 5 (1950): Procter C: Gallble Co. , F C. Docket (;901 (decidrd Non1"1". 2G, 1!JG3), p, 23. (63F, C, HOG, 1;'48J,

716 FEDER/\L TR/I.DE CO l"1ITSSlOX DECISIONS

Opinion 671". 1'.

there is EttIe advantage to be gained from price cutting. The smallfirms in snch a market arc nJso inhibited from initiating price com-

petition. They knmv that the majors .will react promptly, perhapswith drastic effect, to any attempt to disturb the price structure.There may, however, be forces at ',vork in such a market which

counteract to some extent the adverse competitive conditions flowing

from the fewness of the sellers. One such force is the condition ofentry by new competitors. It may be such that many firms can andpromptly do enter the market and estabJish themselves as viable andsubstantial competitors , thereby eroding the market pmver of thedominant sellers. :Moreover, the mere prospect of nmv competitionmay have a salutary effect. The large seller in a concentrated marketknows that the entry of new competitors would jeopardize the stableprice structure of the market and might wen lead to lower pricesas a result of greater competition , and lower profits. He also knowsthat if prices in the market are so high as to make it easy for anew competitor to cover his costs, make a healthy profit, and stillbe compctitivc with the firms presently operating in the market

the attractiveness of entry to prospective competitors will be greatand the likelihood of actual entry substantial. The most effectiveway of discouraging entry into a concentrated market is for themajor sellers to keep their prices down to a level low enough tomake entry unattractive to new competitors.

Thus, the condition of entry, or the state of potentiaJ competi-tion , may have a significant bearing on the degree to wllich a con-

centrated market will exhibit the symptoms, such as high prices

of .weak or ineffective competition; and a firm not actURny sellingin a market, a firm that is merely a prospective or pot.ential com-petitor there, may nevertheless be a significant competitive factorin the behavior of the market. It disregards business realities toview such a firm , which may be as lTIuch a real competitive factoras the firms currently selling in the maTket as being entirely "out-side" the market, or to deny that, just as the elimination of anactual competitor 111ay adversely affect the competitive structure

of a market , so may the elimination of a potential competitor.This does not mean that aetual and potential competition are

completely interchangeable concepts. Even in a competitively struc-tured , unconcentrated market, the elimination of a substantial COH:-pctitor may stil be undesirable from the standpoint of maintainingcompetition , for it can bring- the market structure signifieantly close,'

to a condition of such concentration that anticompetitive effects be-

come foreseeable. See e. Brown Shoe 00. , supra 370 U. , at 343-

BEATRICE FOODS COMPA"Y 717

473 Opinion

44. But the absorption of a potential competitor in such a market islikely to have mueh less competitive significance. If the marketjs competitive in structure, prices are likely to be at a competitivelevel , and so the restraining- effect of potential competition on undnlyhigh : noncompetitive price levels may be irrelevant.

Another difference between actual and potential eompetition isthat the adverse effects that result from all absence of actual com-petition are rarely cancelled out completely by the presence evenof substantial potential competition. Cf. Ekeo Products Co.

Docket 8122 (decided June 30, 1964), 1'1'. 6-7 (65 F. C. 1163

1207-1208). Potential competition may tend to keep priees in a con-centrated market down to entry-discouraging levels, but obviouslythe price low enough to dissuade a firm from trying to force its wayiJlto a new markct always a risky venture-may be substantiallyhigher than the price that would prevail if there were vigorouscompetition among the sellers already there.

That potential competition is an important and substantial, andnot a theoretical or speculative, force for counteracting the anti-

compet.itive and monopolistic conditions which tend to be presentin concentrated markets has been given explicit recognition in ascrips of recent Supreme Court decisions interpreting Section 7 ofthe Clayton Act. " In United States v. El Pa-so Natural Gas Co.

376 U.S. 651 , the acquired company was deemed by the Court a "sub-

stantial factor in the California market" (376 U. , at 658), whichthe acquiring company dominated, even though the acquired com-

pany had never succeeded in doing business in California. The Courtconsidprecl the elimination of the potential competition provided bythe acquired firm highly significant becanse in the circumstances

the mere enorts of Pacific Northwest (the Rccruired firmJ to getinto the California market, though unsuccessful , had a powerfu1 in-l1lH nce. on E1 Paso s business attitudes "ithin the State. fd. at oM),

The Court went on to note: "The effect on competition in a par-ticular market through acquisition of anot.her company (not actuallycompeting in that marketJ is determined by the nature or extent ofthat market and by the nearness of the absorbed company to itthat company s eagerness to enter that market , its resourcefulness

and 30 on. ld. at 660.

S€e aJ Foremost Dain , Inc.. Sllpra t 10S0: Procter if Gamble Co.. 1'.

Docket 0901 (decided ovcmbl'r 26. 1%::1. p. fil (63 F. C. 14fJ5. 1;'771: Bkeo Prodllct8Co. C. Docket 8122 (decined .Tnnl' 30 . 1964)

, p.

1 (G5 P. C. 1Hi8. 1220J : TTines,

tJer tirenes8 oj "Entn/" by A. lrcad.jj r;8tabli. lle(/ ril'n. 71 Q. J. of Econ. 1 2 (1957),

fi.nd 11nthorities cited therein

718 FE DE HAL TRADE cO:\n.nSSIOK DFoCISIO)"TS

Opinion 6"1 F,

In another case , the Court again pointed out the importance ofprotecting potential competition under certain circumstances: " thecompetition with whieh 97 deals includes not only existing competi-tion but that which is suffciently probable and imminent. UnitedStates v. Continental Can Co. 378 U. S. 441 , 458. " (LJack of currentcompetition :: does not necessarily "significantly diminish. . . theadverse effect of the merger on competition. Continental might haveconcluded that it could effectively insulate itself from competitionby acquiring a major firm not presently directing its market acquisi-tion efforts tmyard the same end uses as Continenta. , but possessing

the potentia.1 to do so. " 378 1;, , at 464. The mere "possibi1ity" ofneTI competition, the Court stated

, "

over the long run acts as

deterrent against attempts by the dominant members of either in-dustry to reap the possibJe benefits of their position by l\lisingprices above the competitive level or engaging in otheT comp rllb1e

practices. leZ. at 465-66.

The most complete statement of the Coures vimys on the impor-tance of potential competition is to be found in United States

Penn-Olin Chemical Co. 378 U. S. 158, a case challenging a joint

venture of Pennsalt Chemicals Corporation and Olin 1\fat.hicson

Chemical Corporation:

There stil remained for consideration the fact that Penn-Olin rtlw . (Ji,l

venture) eliminated the potential competition of the corporation that migW

have remained at the edge of the market , continually threatening to cntt-'Just as a merger eliminates actual competition , this joint venture J1' y wi'lforeclose any prospect of competition between Olin and Penn salt in the rplevuntsocHnm chlorat.e market. The difference, of course, is that the merg('r s fol''closure is prcspnt while the joint venture s is prospectiye. Nen'rtllE!r::8.

Iotential compctition . ':' as a :-nb1"titnte for . '" Cactnal coml'c-iti()may restrain producers from oYE'charging those to whom tbeysell or llmlf' l"-

ing those from whom they buy

.:' , "'

, Potential competition , iusofnr t)."i thrthreat sunives (as it "auld have here in the absence of Penn-Olin), m:1y

compensate in part for the imperfection characteristic of actual compctition.

in the great majorHy of competiti,e markets," \Vilcox, Comvetition llIlfl

lonopoly in American Industry, TNEC Monograph :Ko, 21 (1940) 7-S. Potenti31competition cannot be put to a suiJjective test, It is not "snscevtib1c of a r(- 1(1y

and precise answer. " As 'we found in UnUed Sta.tes

y,

Bl Paso Natu.ral Gas Co..

supra at 66-0, the "effect on competition * * '" is determined by the nntllre orextent of that market and by the nearness of the absorbed company tn it. thflicompany s eagerness to cnter that market, its resonrcefnlnf'ss , and so oJ). " Theposition of a COmpfllY " flS a competitiye fflelol' '" .. t.' wns not (liS)1l'OH'd 11 ' the

fact that it hfld IH'ver :oolO * '" * there. * * * (I)t is ilT('1fYlllt in a markf't* * * whel' incremcntf11 needs arp hooming. " Tbe existencE' of an :l::gT"f':-ivC'well equipped :md ,\ pll financed corporation enga gec1 in the SflUll" OJ' 1"l'atp(lin('s of commprce ",- nitillg an:doush' to puter :111 olig opoli:otir mnl'kf't ,, r',llc 11('

BEATRICE FOODS CO;\JPAl\Y 719

473 Opinion

a Rubstantifll incentive to competition which camlOt be underestimated. 378, at 173-74.

"\Vhile the,se decisions authoritatively confirm that the prescrvation of potential competition in concentrated markets is a,n importantgoal of antitrust policy, the Court:s many reference,s to the proba-bility and imminence of new entry, and the eagerness, resourceful-ness , or nearness of the potent.ial competitor, suggest some importantql1aJifieations.

Since every firm in the country is in a sense a, potential competitorof every other, and since an important source of potential competi-

tion is new Jy organized firms, the range of potential competitors inany given market or industry could be said to include all establishedfinns and also an firms not yet in being. j\1:uch potential competitionis simply too remote, speculative, or improbable to have demonstrablecompetitive significance. The elimination of such marginal poten-tial competition is not so serious in its probable effects as to require

remedial action under theantit-rust laws. It is only where the entryof a potential cOlnpetitor is p1' obable that the threat of his entry islikely to exe-rcise a restraining influence on the pricing flnd otherbehavior of the dominant firms in the market. It is , however, not.necessary to est.ablish that the potential competitor will actuallyenter at any time. If the firms already occupying the market arepricing so as to prevent the entry of potential competitors, new

entry may be forestalled indefinitely. Elimination of a leading poten-tial competitor could stil have an adverse competitive effect byreducing eompd1tivc pressure on the established firms.

Even a firm whose imminent entry is certain , however, 111ay notnecessarily be a. significant potential competitor. Suppose that a vcrysmall firm announces its intention of entering a certain market , butits size , and the competitive conditions of the market, make it appearunlikely that the firm ean offer any real cha11enge to the principal

firms or do anything but join the fringe of small firms living inthe shadow of the dominant ones. In such ft, case , though the probability of new entry would be great , the interest in preventing theelimination of the prospective entrant would be slight. Such a flrmwould not have good prospects of obtaining a suffciently largemarket share to cause erosjon of the dominant firms ' market position.

or would the prospect of its entry be suffciently alarming to thedominant firms t.o induce them to lower their prices in order to makecnt.ry nnattrac ive. A related consideration is whether there is alimited number of potentia.! entrants "With the requisite abibty andincentive. Ii there are a great many potential entrants equal1y

/20 FEDERAL THADE COM::lISSION DECISIONS

Opinion 67 F.

capable of entry, the elimination of only one of them may have nosignificant effect.

A merger or other acquisition may, by eliminating a potentialcompetitor, sometimes g-ravely impair the health and vig-or of com-petition. An example is the merger of two firms , both leading- poten-tial competitors in a particular market, which diminishes the num-ber of significant potential competitors by one." On the other handa merger between a very small factor-not one of the few dominantfirms-in the market and a small concern from outside the marketmay increase, rather than lessen, competition by making the mergedfirm a more viable competitor.

The competitive effeets are more diffcult to predict when a verysmall factor in the market is aequired by a substantial potentialcompetitor. The merger may increase competition in the market byinjecting a substantial firm , one capable of challenging the dominantfirms in the market, in place of a firm too small to be a significantcompetitive factor. But much would depend on the industry settingof the merger. Althongh individual merg-ers of this type may appearinoffensive or even salutary, the cumulative effect of a long seriesof such mergers by the leading firms in an industry--ach capable

of entering most markets by internal growth-may be to dry up theopportunities for growth of smaller enterprises which are muchmore dependent on merger a,s an entry device, and thereby impaircompetition in the long run.

The competitive effects are likely to be most serious where themerger is bet\veen one of the dominant firms in a concentratedmarket and a substantial potential competitor. In such a case thereis no improvement in the competitive structure of the market-Tor

one dominant firm has simply been replaced by another-aud sub-stantial potential competition is eliminated. The dominant firms inthe market no longer have to concern themselves with the conse-quenees of entry by the potential competitor; he is already in. Norneed they cope with any additional competition as a result OT hisentry; he has not increased the number of substantial competitorsin the market but simply taken the place of one of those competitors.The potential competitor enters the market in circumsta,nces wherethere is no change in the competitive structure of the market, ex-cept that he is eliminated as a prospective entrant. Snch a mergeris even more injurious to competition if the acquired firm is a poten-tial competitor in one, or more of the acquiring firm s markets. For

C., Uni.ted States Pe/!n- Olin Cliemfcal Co. 378 U.S. 158 (,.pe liP. 718--718 UJJl"a),

joint ,ent\1re between potential competitors, exemplifies this effect.

BEATRICE FOODS CO lPA 721

473 Opinion

then potential competition is hurt twice: the merger eliminatesthe acquiring company as a potential entrant in the acquired firmmarkets, and the acquired firm is e1iminated as a potential entrantin the acquiring firm s markets.

The elimination or a particular leading potential competitor mayassume added economic significance if the number or potential com-petitors is declining, whether due to technological or marketingreasons which Jnake entry more diffcult , or because or an industry-wide merger movement eEminating (or threatenjn,!: to eliminate)significant numbers or potential competitors. In this event, overa.llindustry trends take on the same significance in evaluating theprobable competitive impact or a market-extension merger as inevaluating horizontal and vertical mergers. See Br01cn Shoe Co.

United States 370 U.S. 294. Such background trends may also beuserul in determining whether certain sanctions should he placedon mergers between small concerns and substantial potentia.! com-petitors, which, as noted above, otherwise might not be thoughtanticompetitive.

The Supreme COllt has held that the elimination of an actualcompetitor in a concentrated market is rorbidden by the ShermanAct if the a.cquired firm is a significant competitive factor. UnhedStates v. FiTSt National Bank TnlSt Co. of Lemington 376 CS.665. Seetion 7 of the Clayton Act was not intended to be interpretedand applied in aceordance with Sherman Act standards. "The granddesign (or Section 7J * * * was to arrest incipient threats to com-

petition which the Sherman Act did not ordinarily reach. Penn-Olin Chemical Co. , supra 378 U. , at 170-71. Congress , coneernedwith the long- range anticompetitive effects or mergers and acquisi-tions, determined that those mergers should be forbidden whichendanger the competitive structure or markets and industries. Al-though the elimination of potential competition through a mergermay not have the same immediately apparent effect on the com-petitive structure or a market as the elimination or an actual com-petitor, which diminishes the number of rival sellers by one andma.y appreeiably increase eoncentration of the business of the marketin the hands of a very few firms, it may jeopardize the long-nmprospects for competition in a market at present unduly concen-

trated. Preservation of potential competition both allows for theeventual deconcentration of the market through vigorous new com-petitive infusions (d. United States v. Philadelphia. National Bank374 U. S. 321 , 365 , n. 42) and keeps in being a subtle, often diffcnJtto measure , but. nonetheless very -important restraining rorce on non

722 FEDERAL TRADE COM:YIISSION DECISIO,,S

Opinion 6i F.

competitive behavior by the firms in a concentrated market. Whenit is considered how many markets and industries in the nationtoday are concentrated " the importance of potential competition

in the administration of a statute concerned \\'ith the long- rangecompetitive prospects of the .A..merican economy is manifest.

"Ve reject , as bad economics and bad law, respondent s argumentthat the preservation of potential competi6on is not a significantconsideration in judging a market-extension acquisition: " 1:tJhe con-cept of measuring potential competition and future level of com-

petition is not a reliable, meaningful statutory test because itsubstitutes outright speculation for reliable evidencc-unless as inthe El Paso case the potential competition is so 'imminent! that it

('on titutes actual eompctition. ' (Responc1pnt s Appeal Hricf , p. lOc1.Section 7 is expressly concerned with the "future level of competi-tion." A determination of illeg-ality under the statute " requires notmerely an appraisal of the immediate impact of the merger uponcompetition , but a prediction of its impact upon competitive con-ditions in the future. " 35 No such prediction can be " reliable" ormeaningful" if it fails to take into account the competitive sig-

nificance of eliminating substantial potential competition in a con-centrated market or industry.

Impairment of potential competition is not the only adverse com-petitive effect that may flow from a market (or prolluct) extensionmerger. The substitution through merger of a firm not theretoforeactually selling in the market for one of the dominant firms mayha.ve adverse competitive effects beyond merely the elimination ofsubstantial potential competition-at least where the acquiring com-pany is strong in a number of other markets. These ean be either

3- The Bureau of tbe Censu , In Concr:ntration Ratios ,in JlOlillfacturi1lfJ Industry1958, Part II , pjJ. 4G6-fiT (report prepared for the Sl1bcomm. on ,\ntitrnst Iinfllonopol;:. of the S, Comm, Oil the Judiciar \', comm. print 1962), reveals that of the

39 product classifications having shlpmcnts in exeess of one billion duHan; It year,or l,!i- !'('vn' ('Ilt il)lln trie in which the 4 largest firrn contrul ;1t lcast 50% of

total shipments . The, e are hig-hly concentrated indl1strie , Cf. Bain , Indnstrial Organi-zation 127 (1959) ; Kay elJ , Turner, Antitrust Policy 27 (1959)

""'

United Sta/e. Philorlf:/phia, N(y,tional B(tnk ;)74 U, S, 321, 3(j:; See EdwardsTest of Probuble Effect U1ldcl' the C/oyUm tet, 9 Autitr11 t Bull. : I)!) (HHH).

30Procler d' Gamble Co., 8npm pp. 48-49, 62-64 (63 F. C. 1465, 1566-1568, 1578-15801. ' his wa explained, with specifJc refcrence to the dairy industry, in the Com-mission F01.e1nO opinion:

0\ mfllJ dairy operating in a single local market bas its competitive behavior cun-

trained by conditions existing' in this market; a large diversified firm dups not operateunder similar market constraints. It may, if it chooses, uutcompctc the little man bJ.i'ubsidizing it operations in one market out of its operations elscwhere. Of coursethis temporal'il . ma:r lower slightly the average profits on it o,er-all operations,But for tbe little man, los!Oes in ODe market mean no profits at a1!--no profits withwhich to expand, no profits with which to (le,elop ncw production techniques. DOrrofits with which to make product improvements: or, ,,impl v pl1t, the littJe manis rJeprived of the profits which, in a free enterprise eCOl!om , make it possible for

him to sllHiw in the 10n); run," 60 F. , at 1059- 60.

BEATHICE FOODS COMPANY 723

473 Opinion

Qther product markets or other geographic markets. A fll'lll stronglyentrenched in a number of markets may thereby be able to engage

in deep, sustained, and discriminatory price cutting in selected mar-kets to the detriment of -weaker competitors. See, e.g. , ill DOTe

J.l cad' s Fine Bread Co. 348 U. S. 115. Predatory price cutting of thiskind , at least where it involves discrimination in the price of goodsof like grade and quality, has long been forbidden by the antitrustJaws. See, e. Porto Rican American Tobacco 00. v. American To-Dar;co Co. 30 F. 2d 234 (2d Cir. 1929). But. there is a form of dis-criminatory price competition which, although it may hurt competi-tion and promote or entrench monopoly, has not been directly pro-hibited by the antitrust laws and is , indeed , the subject of an expressdefense to the price discrimination law: discriminatory price cuttingwhich does no more than meet the equally low price of a competitor.In the hands of a powerful firm, able to sustain selective price cuts

Tor so long as may be necessary to ensnre against a loss of trade811Ch price cutting may be a potent \veapon for repulsing new com-petition and preventing entry into concentrated markets.

prospective entrant into a new market ordinarily faces annphill fight. Because he has not sold in the market, his brand isunfamiliar and may at first lack consmi1er ace-cptanee. Distributorsmay be unwilling to offend existing suppliers by dealing with thenewcomer or may simply have a natura.l reluctaIlce to do businesswith a firm not lmown to it. Natural business inertia will , thereforemake it diffcult for a new entrant to gain a foothold. But entrymay not be worthwhile unless the prospects for gajning substantialbusiness from the existing competitors are reasonably good. A com-mon method of penetrating a new market is to offer a low priceduring an initial promotional period. This tactic win come tonaught if the dominant firms in the market are eapable of offeringimmediate and sustained selective price cuts to their customers tohold their bnsiness.

When a powerful multi-market firm absorbs one of the domiuantseHer,s in a coneentrated market, the result may be not only toeEminate a source of potential competition, but to inc.rease the diff-

cu"ly of new entry and thus reduce the prospects for future newcompetition. Suppose that a local market is dominated by three

37 Se lion 2(h) of the Cla tf)n Act 15 ITS. C. 13(b)' proriof'S " That nothing" . .. ..hall rrnent a el!er rf'buttifjg" the prima- facie case th\J madE" b showing tbat his

lower price " .. . to any pnrcha er or pnrclla!'f'rs was made in good faith to meetn fCqlWll, Jaw price of a competit.or. " See Sta11da)"d. Oil Co. C., 340 U. S. 231.

See DIrlam & Knhn, Fair Competition: The !A1W anu Bconornic of .\nt.itru!'tPoJicy 212 (1954); Brooks, lnjl/ry to Competition Under tile Robh/son-Patm.'(!1 Act1()!) l' Pa. L . RI"" . 777. 7S7 (1961): Note. Competitire hljllj.!! Fnr1/"1' tile RfJlJinso11-Pat.711m: Act 74 TIllrY. L. Rev. :1597, Hno (HJ61).

724 FEDERAL THADE COMYIISSIQ:: DECISIOKS

Opinion 6"1 P,

firms , whieh, ,,,hile they aTe large in that market, are small by in-dustry standards and do no substantial business outside the onemarket. A company of the same size might be reluctant to chal-lenge such firms for a share of thc market. A powerful multi-marketfirm , however, having far greater resources than a.ny of the dominantlocal competitors , might have no such inhibitions. Such a fIrm, in

contrast to the single-market independent which must make a profitin that market or go under, is able to weather competitive :;tormsin any partjcular local ma.rket by reason of its far-flung operationscovering many markets, 39 If one of the powerful multi-market firrnsabsorbed one of the dominant local competitors , a prospective Ell-trant would have to reckon not only with local oligopolists but witha powerful multi-market firm having a position of dominance in

the local market and well able to repulse new competition , "h8the.rby price discrimination or by other tactics "hich can be o iled-lve,in preventing ne\V competitors from gaining a foothold. A rnult

market 'company that \VonId not be deterred from challenging lTlerelylocal oligopolists in a new market might be deterred from chaHAng-ing an entrenched firm of equal or greater strength.

e do not snggest that every acquisition of a dominant localcompetitor by a large outside firm may have substantial anticom-petitive effects: that wil depend on such factors as the position ofthe outside firm in the markets where it is active, the degree, towhich the power of the outside firm may be brought to bear in bebalfof the local competitor, and competitive methods and conclitionf- .i the loeal market. But where it is shown that the effect of 6\1.,1, anacquisition may be to increase appreciably the diffculty of ne\\- entry,the adverse competitive effects flowing from the elimination of potential competitor plainly are aggravated.

So far we have been speaking of the principles governing mergersehaJlenged under Section 7 of the Clayton Act. The same principlesgovern mergers chaJlenged under Section 5 of the Federal Trade

Commission Act a.s '" nnfair methods of competition :' or ;; l!nfairacts or practices.

On the basis of isolated excerpts from the legislative histor;' ofthe Federal Trade Commission Act, respondent argues that Con-gress never intended that the, prohibitions of Section 5 mig11t Dn'rlap

those of the Clayton Act. The courts have decirlecl othcr",i,c. Tiley

See p. 722 , 11. 3G 8111)1'(1,: Rel/lOlf8 Metals Co. v. C. :109 F. 2(1 (D.C. Clr. 1962). " tAJ strong, national chaIn of storef; can insulate selectee!from the v3g-aries of competition in particular locations Brown Shoe Co,

States 370 U. S. 294 , 344,

:2' C\n

()i!tletUn7 tr'd

BEATRICE FOODS COMPANY 725

,n3 Opinion

have made clear that conduct which "runs counter to the publicpolicy declared in the Shcrman and Clayton Acts" is "unfair" andunla wfuI uncleI' Section 5. A merger or aequisition the effect OTwhich may be substantially to lessen competition or tend to createa monopoly is "a practice which is plainly contrary to the policy ofthe Clayton Act Giant Food, Inc. v. 307 F. 2d 184, 186

(nc. Cir. 1962), and hence , we think, forbidden by Section 5.We need not pause over the thorny issue of whether, prior to the

1950 amendments to Section 7, the Commis3ion could have pro-ceeded against assets acquisitions under Section 5. Cf. C.

Eastman Kodak Co. 274 U. S. 619; United States v. PhiladelphiaNational Bank 374 U. S. 321 , 339-40, n. 17. At that time the ClaytonAct was limited to stoek aequisitions. In plugging the "assets loop-hole" the 1950 amendments made explicit that mergers and assetsacquisitions which may substantially lessen competition or tendtoward monopoly are contrary to pubJie policy." And the Com-111ission s remedial powers to undo the ill effects of unlavdul acqui-sitions arc as broad in a Section 5 , as in a Section proceeding.Ekco Products 00. C. Doeket 8122 (decided June 30, 1964),

Pl'. 12- 13 (65 F. C. 1163, 1213-1214J.There is , however, at least one important difference in scope be-

tween Section 7 and Section 5. .While Section 7 is applicable onlyt.o corporate acquisitions, Section 5 expressly forbids unfair methodsof competition on the part of persons and partnerships as well ascorporations. Had Congress deliberately limited Section 7 to cor-porations , determining that acquisitions involving persons and part-"erships should not be governed by the same standards appJicableto corporate acquisitions, we would hesitate to conclude that suchacquisitions are to be tested in Section 5 proceedings under Section'7 standards. But no such congressional intent is discernible. So faras appears, Section 7 was not madc applicable to noncorporate acqui-sitions only because corporate acquisitions were in the forefront of

i'Dngl'Pssiona.l concern and attention. In most i-nclustrie, , a. corporateacquisition is far likelier to have substantial competitive effects than

lIoPa8liion 01 iginators' Guild of America v. 312 U-S. 457 , 463. Accord, F.Alotion Pict !re Allvertishlg Service Co. 344 U. S. 3fJ2 , 395: C. Cement Institu.te

:::

:3 e. s. 683 , 693: Grrnd Union Co. v. , 300 F. 2(1 92 (2d Cir. 1!)(2). Cf.SrJrthern Pacific R. Co. v. United States 35fi S. 1: United Stntes v. Columbia SteelCo. ;:34 1:.S. 495, 507 , ll. 7.

'li The fact that tbis policy was declared long" after the passage of the Federal TradeCommission Act is Immaterial. "Unfair methods of competition" is a "flexihle conceptwit.h evolving" contents C. Bunte Bros. 312 U.S. 349, 3;"i: . It embraces practices

declared contrary to P11blic policy in statute . such a the Robinson-Patman Act andt.:!' Cel1cr-KC!auvcr Antirnerger Act, enacted after 1!)1.1. Gmnd Union Co., SUp1.(jirmt Food., Inc., supra.

726 FEDER.-\L TR:\DE CO:\E\HSSION DECISIO:\S

OIJinioll 67 F.

the acquisition of purely PCl'.:-OllilJ 01' pal'1:11el' hjp H::,set,s. It IS l'ec'\c1ily

understandable, thcrcfore , that Congress should have legislat.ed 'withspecific reference to corporate acquisitions.",Ve do not think that Congress, in making Section 7 applic.able

to corporate acquisitions , intended to open up a substantial loopholein the application of the antitrust laws in the field of mergers andacquisitions. Cf. Philadelph'/a Natianal Bank

, .

wpm at 343. This

would be a particularly anomalous result since it would preventfully effective remec1ial action in one of the industries with whichCongress was particularly concerned , the dairy industry, where Hon-corporate acquisitions appe,l"r to have played a signjficant role infurthering concentration. Some of the largest acquisitions made byrespondent and challenged in the present case are noncorporate. Norcan it tenably be argued that the omission of llollcorporate acqui-

sitions from the coverage of Section 7 reflects a. policy of fost.eringsmaIl-business acquisitions-one of the corporate acquisitions foundunlawful by the examiner involves a firm with a.nnual sales of only$119 000. No legjslatiye policy would be advanced by adopting atest of illegality under Section 5 turning on the business form afirm happens to select.

It is well established that Section 5 reaches transactions ,yhich

violate the standards of the Clayton Act though for technical rea-sons are not subject to that unless such application of Seetioll5 would be an attempt to "supply what Congress has studiouslyomitted C. v. Simplicity Pattem Co. 360 U.S. 53 , 67, or '0circumvent the essential criteria of illegality prescribed by the ex-

press prohibitions of the Clayton Act. Report of the Attorney

Geneml' s Nat? Cmmn. to Study the Antitrust Laws p. 149 , n. 75

(1933). See Gmnd Union Co. , suJ1, at 98. Applying Section 3 tononcorporate acquisitions effectuates , rather than circumvents or COlJ.-

fEcts with , Congress ' policy with respect to the prevention of anti-competitive acquisitions.

There is another legitimate and important role t.hat Section ;)has to play in antitrust enforcement, and this with respect to cor-

porate and noncorpol'ate acquisitions alike. Acquisit.ions havE' oftenbeen questioned under the antitrust la,ys , not as being unlawful inthemselves, bnt as forming- an integral part of a. larger offense suchas monopolization. It may be appropriate to scrutinize a seriacquisitions over fL long period of time from the standpoint not. only

See, e. Standarr? Oil CO. Y. United States 221 U. S. 1: U1litcrl State, . Fl1i tU!8hoe Jluchinfry COrp. 110 F. Supp. 95, 307-J2 (D. ":Ia"" . 105.'1), fI ff' rl pfr ('Ilriflh' :.Ji"

s. 521; Ul1itU! Statcs

y.

A/11m/Hum Co. of Anwl icG 148 F. 2d 416, 434--3C I::'; C'HJ45); UnUed States v. GriJinell COi. /J., 2;:6 I'. Snpp. :;44 , 248-411 (D. H 1. 1964).

BEATRICE FOODS CO lPAXY 727

473 Opinion

of ,,,hether particular acquisitions violate Section 7 or Section 5 , butalso of whether the respondenfs course of conduct viewed as a wholeconstitutes an attempt to monopolize or an unfair Inethod of com-petition. Looked at in this way, the series of acquisitions may justifyrelief beyond what might be appropriate in a Section 7 or Section ;;case challenging a particular one or number of the acquisitions inthe series, and irrespective of "hether every individual acquisition

viewed separately, is unlawful.

The importance of developing, so far as practicable, clear andconcrete legal standards for mergers for the guidance of business-men , the enforcement agencies, and the tribunals which must decideSection 7 cases , need not be labored. It has been declared in emphaticterms by the Supreme Court as Yell as by the Commission. SeePmcter Gamble Co. C. Docket 6901 (decided November 261063), pp. 35-- 3D L(U F. C. 14(jS , l;');)(j-lf)(j(jJ. Th( large numbe.l of

mergers consummated every year, the economic costs incurred inprotracted merger litigation , the chilling effect of legal uncertaintyin tilis fil'ld on busines initiati"re and decision making, allet the 1l11-

manageable complexity of trial records in cases where the governingstandards are ill-defined or overbroad, are all factors which makeimperative the formulation of precjse standards tailored to the par-ticular facts and competitive conditions of individual industrie

Thousands of mergers have taken place in the dairy industry

the last 50 years. In an industry so prone to extensive merger activity,the need to develop standards which will be clearly understood bythe industry, and \vhieh will prevent unlawful mergers without

deterring lawful ones , is especially urgent.

'0" " " ; !TJJw uJtima.te Question under 'I (isJ whether the effeet of tbe merger ' mllbe substantially to lessen competition' in the relevant marJ,et Clearly, this is not tIlekind of question which is susceptible of a ready and precise answer in most case,;.It requires not merely an appraislll of the immediate impact of the merger upon compe-tition, but a prediction of its impact upon competitive conditions in the future; tl1jis what is meant when it is said that the amended 7 was intended to arrestfinticompetitiye tendencies in tbeir ' incipiencJ' ' Sucb a prediction is sound only if itis based upon a firm nuderstanding of the structure of the reJevant market; yet tlwrelevant economic data are both complex and elusive. .And unless businessmen canassess the Jegal consequences of a mergel' with SOHle confidence, sound businessplanning is retarded. So also, we must be aJert to the danger of subvertIng con.gressional intent by permitting a too-broad economic inyestigation. \nd so in UDcase in which It is possible, without doing violence to the congressional objectiYeemhodied in 7, to simplify the test of ilegality, the courts ought to do so in theinterest of ollnd and practical judicial administration. Philadelphia Nlttionrll Bronk.Sllpra Ilt 3('2 (citations omitted). See BrOllln Ellioe Co., supra at 341 & ll. 68,Strmdm-d on Co. v. United States 337 U.S. 293, 313.

728 FEDERAL 'l'RADE COM:VUSSIOX DECISIONS

Opinion 67 F. I'.

\ fact critical to the requirements of the merger la-was appliedto the dairy industry today is the sharp and continuing decline in

the competitive importance of single-plant and other very smallor obsolete dairy flrms. This sector of the dairy inc1ustrYI oncedominant, appears destined by technological change to play ,m in-creasingly diminished role. Respondent in the present case admitsand indeed stresses this fact. The exit of many of these small firmswhich can be foreseen over the next several decades, is likely toincrease concentratioll in the local markets-so many of them alreadyhighly concentrated-where such firms operate. This class of firmsmoreover, can no longer be regarded as an important source of poten-tial competition in concentrated dairy markets.

Increasingly, therefore, medium-sized and large dairy firms 111USt

be relied on as the source of aetual and especially potential com-petition in this indnstry. But , as hils been noted (see p. 708 supra),there are relatively few substantial firms between the big eight atone end of the spectrum and the obsolete or obsolescent single-plantfirms at the other." At the same time, the largest firms in the indus-try have grown to a size at which their ability to repulse new com-petition in markets in which they are strongly entrenched hasbecome rormidable. The Commission so round in Foremost DaiTies,Inc. 60 F. C. 944, 1059-60. The examiner so found in the presentcase (initial decision , pp. 649-650), and we adopt his finding. This phe-nomenon is also extensively documented in the records of the manyprice discrimination cases brought by the Commission in this in-dustry. See, e. , initial decision fied September 15 , 1964 , in BeatriceFoods 00. C. Docket 7599 (68 F. C. 286 , 291J.

On the basis of the fundamental facts of the dairy industrystructure, we conclude that any acquisition of a not insubstantialdairy company by one of the industry's giants (roughly, a companyhaving annual sales of more than $200 milion) is highly suspect.'Vhile a small acquisition , considered in isolation , may not appearto enhance the size or market strength of a giant acquiring firm

the history of merger activity in the dairy industry shows that suchacquisitions have in the aggregate contributed to the giant firms

H It might be noted in thi8 connection that there llrc o

:"

bout 25 firI! in the

entire dairy industry that are publicly owned.

.:; Their power in tbis respect bas been enhflTced b ' the e);tc!l i,e product diversifi-ration oi tbese firms, generally throug:h mergers. "Threateried "with competition in rlny0Jle of Its varian;; Ilcti,itlf'l'. (8ucb It diver:;ific(l firm) .. .. "' m :" 8ell twlow co t in that

field, offsetting its losses through Vrofit made in its othl'r 1illP a prilctice which ifrequently explained as one Df meeting competItion " F. C. RrrJ01"t on Tile MergerJlovement (194.8), p. 58. See Procter ,c Gamble Co" SUPl"ll

pp. .

18- 19 f6:i P. C. 14G5,

1566-1568J.

BEATRICE FOODS COMPA1\'Y 729

473 Opinion

obtaining a position of such strength throughout their marketing

areas as to raise substantial barriers to the entry of smaller firms.Such acquisitions, moreover, have tended to retard the emergenceof a strong and healthy middle tier of medium-sized dairy companiescapable of offering vigorous competition to the giant firms. Engross-ing small firms by the thousands, as the industry leaders have donehas prevented the creation of strong, viable competitors throughmerger between small firms , as opposed to mergers between smallfirms and large.

In the present case, the examiner entered an order, comparable tothe orders entered by the Commission against the three other largestdairy companies, forbidding respondent to make any future dairyacquisitions for a period of 10 years without the Commission s ap-

proval in advance. It is apparent that acquisition activity on thepart of firms of similar size not under rormal order is equally suspectand should be observed carefully by the Commission.

Another major objective of Section 7 in this industry is to pre-vent the repetition of the pattern of growth through acquisitionwhereby the firms which now dominate the industry achieved theirpositions of leadership. If the Commission were to sit idly by whilefirms now ill , ::a.y, the $:10 million to 860 million range engaged inacquisition programs calculated or likely to make them as large asthe present respondent , the result would be the rapid transformationof the industry into one completely dominated by a handful of giantfirms and far less competitive than at present. Accordingly, just as

the Commission , in the Forenwst case , challenged a series of acqui-sitions which transformed the respondent from a medium-sized toa very large dairy company, so any similar pro ram of acquisitionsundertaken by a medium-sized lnmnDer of the illdnstl' ' shouJcl re-ceive close scrutiny by the Commission.

However, not every acquisition by a medium-sized firm, in cir-

cumstances where no huge-scale p lttel'll of acquisition activity isperceil-able , is necessarily suspect under the antitrust laws. Such anacquisition would be questionable if it eliminated another medium-sized firm, sjnce such firms are few and are a critical source of actualand potential competition in this industry. vVhere, hmycver theaequired firm is small (say with sales of less than $10 million),other factors nlllst be considered. If the merger is conventionallyhOl'izol1ta.l in c.haracter and eliminates a significant competit.orwill probably be unla wiuI. The same will be true if one of the firmshas a position of strength in a conc.entrated market and the othelfirm is a significant potential competitor in that market.

3j9- 71-

730 FEDERAL THADE CO),L'IISSION DECISIOXS

01J1nio11 67 F.

Congressional policy as expressed in Section 7 will be best served-in this industry if n1crger activity is channeled toward the smallerfirms. Certainly mergers between firms too small to achieve theeconomies of scale made possible by the technological revolution inthe dairy industry or to function as strong, eficctivc competitors

nd penetrate into nc\\ markets are la .Iful. J\1ergcl's between suchfirms may be a method of strengthening the competitive process inthis industry. Section 7 does not prevent the. exit through mergerof firms too small to be viflblc. To be sure : \Vhere a small firm isacquired by a very large or even one. of the moderately laTgc mnlti-market dairy companies, the result may be to impair competition;such a merger is unJaT\flll. But if the same small firm is acquiredrather, by another reasonably small firm , the merger is likely toresult not in a weakening, but in a strengthening, of the competiti,-strueture of this industry; s11c,h a mergeI' is dearly lawfu1.

Our analysis of the acquisitions challenged in the present case isconsiderably simplified clUG to the meticulous anaJysis by the hearingexaminer in his 223-page ini6nl decision. \Ve have carefnlly reviewedthe examiner s findings, and haye concluded that , with the exceptionof his holding that mergers are not subject to chal1cnge uneler Sec-

tion 5 of the Federal Trade Commi:;s1on Act (see pp. t)lS-;j20 SllpiY)

his findings and conclusions are fact-uaIly correct and legally soundand should be adopted as findings and conclusions of the Commission.

Complaint counsel' s appeal can be disposed of quickly. \Vith re-spect to the CJarksburg and Associated acquisitions , we agree withcomplaint counsel and the examiner that they would be unlavd111under Section 7 if the aequired companies could be shown to havebeen "engaged in commerce. " \Ve also agree with complaint. counselthat it is immateriaI, so far as satisfying this jurisdictional require-ment of Section 7 is conc.erned , ,yhether the amount of interstatecommerce by the acquired company is, either relatively or absolut.ely,large or small 4G and that purchase in commprce of goods for l'eloeally is a form of engaging in commerce embraced by the statut.e.Foremo8t Dairies , Inc. 60 F. C. 944, 10G9.

On the other ha, , \YB do not think that Congress intended thect to embraee corporations "hose involvement in commerce \ya

completely insignificant , trivial : ancl sporadic. Cf. Skin/LeT v. United

.01 Cf. United Stotes Yellow Cab Coo

.'j:

2 V_l"aClI1Im 01' Company, 310 U. S, 151). 225 , n. 59.

21S. 225; nilet! Sta.tIJS Y 800011!1-

BEATHICE FOODS Co:lPAXY 731

Ol,inion

Shr/es Steel Corp. :233 F.2d 'IG2 (Mh Cir. lD, d)). EU'll cumplai-,ltcounsel concede that. it must be "sho\\n that the acquired corporationis engaged in commerce , : * * beyond an infinitesimal extent." AppealBrief of Complaint Counsel , p. 13. The record does not disclose thedOll T amount of either Clarksburg s or Association s purchases

commeree. So far as appears , the interstate purclw es of both ae

quired firms ere too infinitesim,11 to satisfy the requirements ofthe statute.

\Vith regard to the ot.ller acquisitions dismissed by the examineras to ,,'hieh compbillt counsel have appealed , no extended discus-sion is necessary, since cOll1plaint counsel seck neither divestiture not'ot11er relief agahlst t.hese acquisitions. The sale reason offered bycomplaint counsel for seeking a Commission ruling on their legnlityis to support the lO-year ban on acquisition contained in the eXilm-

iller s order. But we think the propriety of such a ban can be deter-mined on this record irrespective of the legality of these sixacquisitions , which , as the examiner noted , raise acute problems notonly of relief but also of commerce and competitive effect.

"lVe. also do not find it necessary to determine on this recordwlwthe,r re,spondent's series of acquisitions , viewed as a. pattern , violated Section 5 of the Federal Trade Commission Act. The onlyremedy sought by complaint counsel for this alleged violation is aban on future acquisitions and we think a demonstrated proclivityTor making dairy acquisitions that violate Section 7 , as the examinerfound in the case of five of respondent's acquisitions , 'Would in the.circmnstances justify, wholly without reference to Section 5, anorder requiring- respondent to obtain the Commission s approval inadvance for all future acquisitions in this industry." That bringsus to the four acquisitions which the examiner found to be unlawfuland ordered divested and as to which respondent has appealed fromthe examiner s fidings and order.

On August J , 1953 , respondent acquired Creameries of AmericaInc, Creameries, with annual sales of 849 million , was a diversifieddairy company and unquestionably one of the major competitive

; Xeither made any sales in commerce.'s Ire haxe heJd that such an order is within the Commis!'!on remedial power in

enforcing SeCtJOD 7. Ekco Products Co. C. Docket 8122 (decided June 30, 1964),p. 15 (65 F. C. 1168 , 1215J. Cf. United Stu, tes Jerrold Blectronics Corp. 187 F.SUP)), ;).5, 575 (B.D. Pa. 1960). afJ' rl per curiam 365 U.S. 567. 1t !'1101J1d lie noted

that an order forbidding future acquisitions without prior approval by the Commi!'sionin no scn.se nil nbsolute baJJ on . uch f!CIj11isitions. Iu deciding wl1etJJcr or not to

ppro"e a proposed acquisition submitted nuder such nn order, the CommJssion Isnot free to act capriciously or unref!sonably. It may deny approval only where thef1cqnhltion, if COnf'1Jill1:1ted, \\0\11(1 ('onfl!('t ,,'.- th tbe remedial objectives of the order.

732 FEDERAL TRADE cO:\nnSSION DECISIOXS

Opinion 67 F.

factors in the territory west of the Rocky Mountains. As notedearlier, Beatrice s traditional area of distribution was centered east

of the Roeh-y :\lo11ntains. At the time of the aequisition , respondenthad already begun to penetrate the western market and had comeinto actual competition with Creameries in several parts of Cali-fornia. The western area was regarded by respondent's offcials a3a natural and vcry desirable area into which to expand operations.It. is likely that, but lor its acquisition of Creameries , respondentwould have continued to penetrate the various markets \Vest of theRockies. It cJearly had the ability and incentive to do so. It was

the leading potential competitor in these markets-while at the sametime Creameries was a significant potential competitor of respondentin respondent:s ma.rket areas cast of the Rockies.

Creameries was a well-entrenched , and in many cases the dominantda.iry firm in a number of llighJy concentrated markets in the fa.rwest; these markets arc analyzed at length in the initial decision.The substitution of respondent for Creameries in these marketseliminated precisely the kind of substantial and imminent potentialcompetition that Section 7 , for the reasons set forth eaTher in tIllsopinion, is de3ignec1 to protect against impairment by mergBr.s. 1\101'e-over, in view of the demonstrated capacity of large multi-marketfirms in this industry to repulse new competition in local marketswhere they are well entrenehed , the uniting in one firm of the sub-stantial resources possessed by respondent a,nel by Creameries iswe find, Jikely to increase the diffculty of new entry into the con-centrated markets where either respondent or Creameries was al-ready a leading firm at the time of the acquisition , and so may Jessencompetition substantially. Creameries, fially, like Philadelphia

Dairy, Sylvan Seal and other dairy firms whose acquisition by lead-

ing members of the dairy industry has been ehallenged in Com-mission proceedings , was just such a viable , medium-sized , independ-ent Ilrm whose preservation is essential to tIlc long-run competitiveprospects of the dairy industry.

On January 1 , 1955 , respondent acquired Greenbrier Dairy Prod-ucts Company, a West Virginia dairy with annual saJes of almost$4 minion, Respondent concedes that Greenbrier "is a viable inde-

pendent * * '" with modern processing equipment, " Greenbrier hadmarket shares of 15 % or more in several concentrated markets inthe state, and must be reckoned a major competitive factor at thetime of the acquisition. Respondent ,vas not in direct competition\T"ith Greenbrier at the time of the acquisition to any substant

BEATRICE FOODS CO \IPA 733

473 Opinion

extent, but it was doing business in the vicinity, and it was a lead-ing potential competitor in the coneentrated markets where Green-brier was very strong. Respondent used its acquisition of Greenbrieras a base from which to acquire other dairy companies in the stateand thereby establish itself as the state s leading dairy company.

We think this is the kind of market-extension acquisition that See-tion 7 was intended to prevent.

Durham Dairy Products, Inc., was acquired by respondent inMarch 1953. It was the second largest seller of fluid milk in a3-connty area. of orth Carolina: with a market share of 30.5%, andthe largest seller of iee cream with 25.4%. The hearing examinerconcluded (initial decision , pp. 679-680), we think correctly:

Based on the record as a wJwle, including the substantial position which

Durham occupied in its market area in both the fluid milk and frozen productlines, the close proximity of its and re pondel1t' s territories in the frozenI)J.odvct line, the fact that the acquisition rcsulted in the injection of a strong

national company into a fluid milk market which had theretofore consistedalmost entirely of local companies. and the substamial increase in concen-

tration among nationaJ companies in the hazen product line, it is cOI1cluded

that the effect of the acquisition of Durham Dairy by respondent mfly besulJstantially to 1essen competition, or to tend to cre8.te a monopoly in tbefluid milk a11d frozen product lines in Durham s sales area.

Community Creamery: the last acquisition found unla:wful by thexaminer as to which respondent has appealed, was a horizontal

merger \vhich , for the reasons stated by the examiner, is c1early Ul1-la\Ylul under the governing legal principles. ,Ve conclude that theexaminer s findings of unlawfulness ,vith respect to the foregoing

four acquisitions (a, well as his finding that the acquisition of Dahl-CI'0- 1a was illegal , which I,RS not nppealed by respondent) werecorrect.

VII

The hearing examiner entered an order that ould require respond-ent to divest the assets of the fiY8 acquired firms as to which hefound a violation of Section 7. TIis order also imposes a ban onfuture acquisitions of dairy companies : c.orporate and noncorporatefor ft. period of 10 years without prior approval by the Commission.

\"\

e have decided not to undertake at this time R, fun consideration ofthe queE=tions bearing on the appropriate reJief. ,Ye have alreadyalluded to the diffcult practical problems encountered in attemptingdivestiture of dairy coneerns whieh may have been acquired manyyears ago. In addition , there is an obvious need to coordinate the

734

:('

EDERAL TH.\DE COl'vDHSSION DECISIONS

Order 6'1 F.

relief afforded in the prescnt case with the orders whieh haye beenentered and have become effective aga.inst the other leading firmsin the dairy industry. Accordingly, we have determined that beforethe Commission attempts to fashion an order the respondent and

complaint counsel should be given an opportunity to submit recom-

mendations, pursuant to Section 3.24 (c) of the Commission s Rulesof Practice, for an order effectuating this decision and harmonizingwith the other orders the Commission has entered in this industry.If the parties are unablc to work out an order that adequately pro-tects the public interest and remedies the violations fonnd , they shallSllbmit sepa,rate recommendations and the Commission will thenproceed with the prepa.ration of an order on the basis of the finclLngsand conclusions adopted hcrewith.

Commissioner :Maclntyrc not participating. C0111nissioner Jonesnot participating for the rcason that oral a.rgument was heard priorto her taking t.he oath of offce.

ORDER AnoPTIxG FIXDlNGS Axn CONCLUSIOXS AND DEFEHHIXG

EXTH.Y OF FTX.-L OnDER

l:pon considerntion of the cross-appeals of complaint counsel and

respondent from the initial decision of the hearing examiner, andfor the reasons stateel in the accompanying opinion

It is onleTecl That , except as expressly noted in the a,ccompanyingopinion , the fllclings of fact and conclusions of law contained in theinitial decision , as supplemented by the findings and conclusions itIle accompan)'ing opinion , arc adopted as the decision of the Com-mission in this matter"

It is lU1'theT oTdeTed That entry of a final order in this matter isdefe.rred ulltil further order by the Commission. Complaint counseland counsel for respondent are directed to make written submissi0ll3

as described in the 1,companying opinion , no lat.er than sixty (60)days from the. ervice of this order upon them.

Commissioner ):TacIntyre. not participating, and CommissionerJones not participat.ing for the. reason that oral argument ,yas heardprior to her taking the oRth of offce.

Finnl nl'rln.' to C(,fl Q an(1 rl(. t i s;j(' fl Del', 10 , 1 ()G:" , OS P. C. 1003 . mo(lif. ccl .Tunc 1967. 71 F. C. 797.

Compare the prorednre E'llployed in the recent UnHed Stnte, Y. JlanllfactllrenHanover T1 USt CI). eRse (S.

:\.

Y., lIIareh 10, 1965), where the district judge ganthp parties ten rlays "to agree on appropriate relief and the form of the llceree to beeDtered tilting th:1t if the IJrl'ties "ere ull.'blc to agree " the eonrt wil set a tjll('and eondl1ct bearings to determine the cqnitable relief neees an' and . ppropriate intht' public interest to e1imlnate tIle eHeets of the merger." 1965 CCH Trade CaseO!

f 71408 at p. S07S0.

SL'N:1:IASTEH ELi' CTRIC PRODUCT ) INC., ET AL. 735

Complaint

I:: THE MA"'TER OF

SUNMASTER ELECTRIC PRODUCTS , INC. , ET AL.

CONSENT ORDER , ETC. , 11' r..GARD TO THE ALLYGED VIOLATION OF THE

FEDEnAI TRADE COl\OnSSION ACT

Docket C-89" Complaint .:pr, , 1f165-lJecision , lipr. , 1965

Consent order requiring a r-Tew York City wholesaler of Sunmaster incandescentelectric light bulbs and I'elated mercbanrlise , distributinK through individualsalesmen , to cease making false daims as to laboratory teEts, guaranteesidentity of users of their llercb:mdise , misrepresenting the characteristicsof competitors ' light bnlbs , and furnishing catalogs , advertising mats, andother promotional material to aalrsllE'll through which they may misleadprospective customers,

COl\IPLAINT

Pursuant to the provisions of the Federal Trade Commission Actand by virtue of the a.uthority vested in it by said Act, the FederalTrade Commission, having reason to believe that Sunmaster ElectricProducts, Inc. , a corporation , and Kathan Bernard , individually andas an offcer of said corporation, hereinafter referred to as respond-

ents, have violated the p1'ol/i8ions of said Act and it appearing to theCommission that a proceeding by it in respect thereof would be inthe. public interest, hereby issues its complaint stating its charges inthat respect as follows:

PAK\.GHAl'H 1. Hespondcllt Sl1nma ter Electric Products, Inc. , is

a corporation orga.nizcd , existing and doing business under and byvirtue of the la \YS of the State of l\ ew York, with its principal offceand place of business located at 13;3 ,Vest 19th Street, in the city ofNe,y York , State of New YOlk.

Respondent X athan Bernard is the president of Sunmaster Elec-tric. Products, Inc. lIe formulates , directs and controls the acts andpractices of Sunmastcr Electric Products, Inc. , including the actsand practices hereinafter set forth. His offce and principal place ofbusjness is located at the above stated address.

AH. 2. Respondents ha VB been and are now engaged at the whole-

sale level in the ofIering for sa. , sale and distribution of Sunmast.er

incandescent light bulbs nnel related merchandise to individuals whoact r, s sa.lsmen and "\d10 resell uch merchandise to the public. Suchsalesmen are sent through the mail catalogs , broehures, order formsad \ crtising rnats and 0111e1' p1'ol1otiolla 1 materia.1 designed and in-tended to induce sales o:E sneh merc.handise to s11ch sRJesmen and to

be. used t.o promote the resale of 3uc.h merc.handise to the public.

736 FEDERAL TRADE COM:\IISSION DECISIONS

Complaint 67 F.

Individual respondent )I athan Bernard is now, and has been also

engaged , directly or through another corporate device, in the offer-

ing for sale , sale and distribution of coffeemakers, in commerce; andfor some time last past was similarly engaged in the of!'ering- forsale, sale and distribution of vitamins, in commerce.

PAR. 3. In the course and conduct of their business , respondentshave caused and now cause said Sunmaster light bulbs and relatedmerchandise , when sold , to be shipped from their place of business inthe State of New York to purchasers thereof located in various otherStates of the United States and in the District of Columbia, andmaintain, and at all times mentioned herein have maintainedsubstantial course of trade in such merchandise in commerce, as

commel'ee " is defined in the Federal Tradc Commission Act.PAR. 4. In the course and conduct of their business, and for the

purpose of inducing the sale of SUl1master incandescent light bulbs

respondents have made numerous statements and representations con-cerning the characteristics of competitors ' light bulbs, laboratorytests conducted, the identity of regular users, and the guaranteeprovided.

Typical and illustrative of sHch statements and representations arethe following-:

(a) HE BIG CO;lIPAl'IES SHORTEN B LIFEJust about fifteen years ago orc11na,)" bulbs lasted 1 500 h011rs, Today, inspite of the fact that Sunmaster hns a 10 000 hOUT bulb ,..hi('l1 is 100%gnaranteed for 1) years-you re luck;)' if your onlinary bulb lasts 750 toJ ,000 hours!

(b) HERE' S 'VHAT L\TDEPEi\D:EXT LAD TESTS PROVEThe sturdier fiament and the impro'Vu cOIlstruction make it 1)0;,8ibl(' for aSunmaster 5-yral' bulb to with:-tanrl .131'13 and knocks that '.\"oul( shatteran ordinary fiament. Also:

' * "' the light is more relaxing, free from q:Jare* * '" it burns coolcr- 20% coole ' than ordinnry buJbs"* II .. it gives a steadier light* * .. it aduaJIy lasts 13 times longei' than ordinary bulbs.

(c) EVEN BIG USERS ARE S'\VITCHIXG TO LO;\TG LIFE BULBSScores of industrial plants , offces and institutions arc mnking the s"itchto this more economical ,,'uJ' of lig-hting. For example , Vnited Stnj-es Steel

Company, Grullman Aircraft, Tide,,'arel' OiL TJ.' :ln C:lribi)!'i1n . AirwaysGen. MacArthur Airport, \Y('!'toH'r Air Force BDse , Gl'mmm R()n.t 1Vorksand m:1ny other!' ore rcgulfll', enthnsiastic U."I?J'

,,,

(d) Flattering light for 5 YiCars-G'CAR" \?\TEED",Ve ullconditiolllllJy gU!uant.ep alJ Sunmast('l bulbs.

PAR. 5. Through the use of the aforesaid statements and repre-sentations , and others similar thereto , but not specifica1ly set fOl'th

respondents have representec1 clirectly or by imp1ica.tion , that:

SFL\ :'L\6TER ELECTHIC PROD"GCTS, IXC. ) ET AL. 737

73:3 COJl1Jlflint

(a) Approximately fifteen years ago the manufacturers of C01n-

petitive standard incandescent lig-ht bulbs reduced the useful lifeof said standard bulbs from 1 500 hours to a substant.ially lesser

amount.(b) A.1 independent testing laborat.ory has tested Sunmast.er 5-

year bulbs and verified the aforesaid 'Caims made for snch lightbulbs.

(c) Tidewater Oil Company, Trans-Caribbean Airways , GrummanAircraft and each of the other nationally known companies listedregularly use Sunmastel' light bulbs.

(d) Sunmastcr ;')-year bulbs are unconditionally guaranteed inevery respect for five years or for some other extended but unspeci-fied period of time.

PAR. G. In truth and in fact:

(a) Approximately fifteen years ago nor subsequent theret.o thema.nufacturers of competitive sta.ndard incandescent light bulbs did

not reduce the usefnl life of said standard bulbs from 1 500 hours

to a substantially lesser amount or any lesser amount.(b) An independent testing laboratory has not. tested

yearbulbs nor verified the aforesaid claims made forbulbs.

(c) Tidewater Oij Company, Trans-Caribbean Airways, Grum-man Aircraft and r:Rch of the other nntionfllly known companieslisted do not. reg-Hlarly use Smlmastel' light bulbs.

(d) SHnmaster 5-year light bulbs nre not unconditionally guar-

anteed in every respect for five years or for some other extendedbut unspecified period of time. Such guarantee as may be providedis subject to n1111e1'OUS limit.ations.

Said statements and J'cpresentations were , therefore, false, mis-

leRding and deceptive.PAR. 7. By the r1foresaid practices respondents now place, and

for some time last past have placed in the hands of Sunmaster salesmen , for the purpose of inducing the sale of Sunmaster light bulbsthe means and instrumentalities by and through which they maymislead the public.

PAn. 8. In the COUlse and conduct of their business, and at alltimes mentionecl herein, respondents have been in substantial com-

petjt.ion in commercc with corporations , firms, and individuals en-gaged in the sale of merchandise of the same general kind a,nature as that sold by respondents.

An. 9. The use by respondents of the aforesaid false, mislead-

ing and deceptive stateme,nts. representations and practices : has had

Sunmastersuch light

738 FEDERAL TRADE CO:\DnSSIO DECISIONS

Decision and, Order G7 F.

and now has, the capacity and tendency to mislead members of thepurchasing public into the erroneous and mistaken belief that saidstatements and representations were and are true and into the pur-

chase or substantial quantities or respondents ' merchandise by reasonof said erroneous and mistaken beJief.

PAR. 10. The aforesaid acts and practices of the respondents as

herein alleged , were and are all to the prejudice and injury or thepublic and of respondents ' competitors and constituted , and nowconstitute, unfair methods or competition in commerce, and unfairand deceptive acts and practices in commcrce, in violation or Sec-

tion 5 of the Federal Trade Commission Act.

DEClSlOX AXD ORDER

The Federal Trade C01111ni85ion having initiated an investigat.ionor certain acts and practices or the respondents named in the cap-tion hereof, and the respondents having been furnished thereaft.erwith a copy of a draft of complaint which the Burean of DeceptivePractices proposed to present to the Commission for its consider-ation and which , if issued by the Commission , would charge respondents with violation of the Federal Trade Commission Act; and

The respondents and counsel for the Commission having thercl,Jterexecuted an agreement containing a consent order, an admission bythe respondents of all the jurisdictional facts set forth in the afore-said draft of complaint, a statement that the signing of said agree-

ment is for settlement purpo es only and does not constitute an :lc1-

mission by the respondents that the law has becn violated as allegedin such complaint , and waivers and provisions as required by theCommission s rules; andThe Commission, having reason to believe that the respondents

have violated the Federal Trade Commission Act, and having deter-mined that complaint should issue stating its charges in that respecthereby issues its complaint, accepts said agreement, makes the fol-lowing jurisdictional iindings , f-lld enters the following order:

1. Hespondent Sun master Electric Products, Inc. , is a corpora-

tion organized existing and doing business under and by virtueof the Jaws of the State of ew York, with its principal offce andplace of business located at 133 IVest 19th Street, in the city of

:Kew York, State of Xew York.Respondent Nathan Bernard is an offcer

and his address is the same as that of theof the said corporation

said corporation.

SU?-'j\iASTER ELECTRIC PRODUCTS) I:.C. , ET AL. 739735 Decision and Order

2. The Federal Trade Commission has jurisdietion of the subjectmatter of this proceeding and of the respondents and the proceedingis in the publie interest.

ORDER

1 t i8 oTdered That respondents Sunmaster Eleetric Products , Inc.a corporation , and its offcers , and Nathan Bernard , individually andas an offcer of said corporation, and their representatives, agentsand employees, directly or through a,ny corporate or other devicein connection with the offering for sale, sale or distribution of 8un-master incandescent electric light bulbs, in commerce , as '"com-merce" is defied in the Federal Trade Commission Act, do forth-with cease and desist from:

1. Repre,senting, directly or by implic(ltjon that approxi-mately fifteen years ago the manufacturers of standard incan-descent light bulbs reduced the useful life of saiel bulbs; ormisre.presenting, in any manner, the changes or modification indumbility, performance or other characteristics made by themanufacturer or producer of any competitive product.

2. R.epresenting, directly or by implication , that any merchan-elise has been tested by an independent testing laboratory or thatany claim has been verified by an independent testing labora-tory or organization unless respondents establish that such is thefact; or misrepresenting in any manner, the results of any lab-ora tory or other tests.

3. Rcpresenting directly or by implication that any person

group, firm or corporation is a user of any merchandise Ul1less re-spondents establish that such is the fact; or misrepresenting, in

a.ny manner, the extent of the use of such merchandise by anyperson , group, firm or corporation.

4. H.epresenting, directly or by implication , that any merchan-dise is guaranteed unless the nature and exte.nt of the guara,tee, the manner in which the guarantor will perform , and theidentity of the guarantor are clearly and conspicuously disclosed.

5. Furnishing or otherwise placing in the hands of salesmen

or others the means a,nd instrumentalities by and through whieht.hey may mislead or dece.iye the public in the manner or as tothe things hereinabove prohibited.

1 t 'is .fnrthe?' ordered That the respondents herein shall, within

sixty (GO) days after service upon them of this order , file with theCommission a report in writing setting forth in detail the mannerancl fonn jn v, hich they have complied \Ylth this order.

740 FEDERAL TRADE CO:\BIISSIQ)J DECISIO

Complaint 87 P,

IN THE :OIuTER or

JOHK II 'YORTMAN

DOIKO BLTSINESS AS

AJ\ERICA PLASTICS , ETC.

CONSEl\T ORDER , ETC., IN REGARD TO THE ALLEGED VIOLATION OP THE

F:EDER.'U-, TRADE C03DrISSION ACT

Dockd 0-895. Comp/oint , Lip,.. 2'; 19G5-Decision, Apr. , 1965

Consent order l''(luiring a Chicago , Ill., seller of skip-tracing; forms-postcardquestionnaire forms-used for the purpose of obtaining information on

delinquent debtors , to cease using such forms to obtain information with-out clearly revealing the purpose; relJresenting falsely that "a new modelcar" or any other gift was being held for recipient pending receipt of COll-

pleted forll; and using sneh ll::rnes as "Kar-Cbance" to describe hisbusiness.

CO:iIPLAIXT

Pursuant to the provisions of the Federal Trade C0111mission Act

and by virtue of the authority vested in it by said Act, the FederalTrade Commission having Teason to believe that .r ohn H. ,y oTtmanan individual trading and doing business as American Plastics , l\:ar-Chance Diyision of American Plastics, or lCar-Chance , hereinafterreferred to as respondent, has violated the provisions of said Act , andit appearing to the Commission that a proceeding by it in reSp2ctthereof would be in the public interest, hereby issues its compbintstating its charges in that respect as follows:

PAR\GR-\PH 1. Respondent

, .

John 1-1. ",Vortman , is a, indiyich18.J

trading and doing business under the name of American Plastics.1\:ar- Chance Division of American Plnstics , or E:ar- Chance , IVit.h itsprincipal place of business located at 80 East Jack80n BoulevardChicago , Illinois.

PAR. 2. Respondent is llOIV, and for some time last past has been.

engaged in the business of selling a printed mailing form under histrade name. Respondent causes sEdc1 printed n1aterial when sold, tobe transported from his place of business in the State of Illinoisto purchasers thereof at their respective points of location in variousother States of the United States. Respondent maintains , and at ulitimes hereinafter mentioned has maintained, a course of trade inhis said form jn commerce as ': commerce" is defined in the FederalTrade Commission Act.

PAR. 3. The said printed form sold by the respondent, as heretoforealleged , is designed and intended to be used, and ha,s been usec1

A?vIEHICAX PLA TICS. ETC. 741

7-:0 Complaint

coJlection agencies , morehants and others to \ hom it is sold forthe purpose of obtaining information concerning a.lIcgccl delinquentdebtors ,,,jih the aid and assistance of respondent as hereinafter setforth.

The said printed material consists of a double postcard perforated50 as to permit the two parts to be easily separated. The detachableportion of the card gives t.he address ;;Kar- Chance Division of Amer-ican PIa sties, 600 11ichigan Building) Detroit 26 Hichjga.n " which

is ft, mail pick up and telephone answering serdce offce used byrespondent. The part of the card retained by the addressee has

affxed thereto a five-cent stamp: and the portion to be c1etaehec1and returned to the responde.nt bears a notice that postage will be

paid by the addressee. Said postcard form sets out qnestionswhichif answered , ,,,ill provide information ",hich is c.onsic1ered to be ofvalue in the collec.ion of accounts owed or alleged to be O\vec1 bythe addressee. The purchaser of re,spondent:s printed material aboverefcrred to fills in the name and address of the alleged debtorsand/or the name and address of a known relative of the debtor, andsends the forms in b\llk to respondent c/o Kar-Chance , GOO MichiganBui1lling, Detroit 26, fichigall address. Hespondent then mails orcauses to be mailed the form individually from the aforesaid De-

troit , Michigan address thereby l'cceiving a Detroit, Michigan post-mark. If the addressee completes the form and returns it, an envelopecontaining a small plastic toy automobile is sent to the person filing

in the form. Re.spondent then forwards the completed form to thepurchaser who is identified to respondent by a coded number appear-ing on the face of the form.

PAR. 4. The fol1owing is typical of the printed form sold by re-spondent and used in the aforesaid manner.PAR. 5. By use of the name "Kar- Chance " the printeel statement

on the postcard form

, "

This is to inform you that your name hasbe,en chosen as the recipient of a new modeled car :' and by other\\ords on said postcard form and the general format thereof, respondent represents, directly or byimp1ic.ation , to those to whomthe saiel postrard form is mailed that the respondent is in S011eca.pacity connected with the a \,arc1ing of a car as a pri:.e or giftearned or \\on , which is being l1elc1 for the addressee and will befonnrded upon his filling in sa;d postcard form.PAR. G. The aforesaid representations and implieations were and

are misleading and deceptive. In truth and in faet, respondent's busi-

1 Pictorial printed form omitted in IJl'intij)g.

742 FEDERAL TRADE COl\'lMISSION DECISIONS

Decbion and Order 67 F.

ness has , so rar as the recipient or said cards are concerned, nothingto do with the awarding of a prize or gift of a new car as the

phrase "a new car" is generally understood. The persons from whomthe said cards are intended to obtain information are not winnersof a prize nor donees of a gift car or automobile, in the generally

accepted sense or "car" or "automobile. ' The "new modeled caT" towhich the cards refer is nothing more than a small plastic toy inthe shape of an automobile. The sole business of respondent, con-ducted as aforesaid , is to scll the printed form to others to be usedby them for the purpose or obtaining information concerning allegeddelinquent debtors by subterfuge. This practice constitutes a scheme

to mislead and conceal the purpose for which the information issought.

PAR. 7. The use, as hereinbefore set forth , or said form has hadand now has , the tendency and capacity to mislead and deceive per-sons to whom said form is sent into the erroneous a.nd mistakenbe1ief that the said repre.sentations and implications are true andinduce the reeipients thereof to supply information which they other-wise would not have supplied.

PAR. 8. The aforesaicl acts and practices of respondent , as hereinallegcd , were , and are , a11 to the prejudice and injury of the publicand constituted , a.nd now constitute unfair and deceptive acts and

practices in commerce , in violation of Section 5(a) (1) of the Fee-eral Trade Commission Act.

DECISION AND ORDER

The Federal Trade Commission having initiated an investigationof certain acts and practices of the respondent named in the cap-tion hereof, and the respondent having been furnished thereafterwith a copy of a draft of complaint which the Bureau of DeceptivePractices proposed to present to the Commission for its considerationand which , if issued by the Commission, would charge respondent

with violation of the Federal Trade Commission Act; andThe respondent and counsel for the Commission having thereafter

executed an agreement containing a consent order , an admission bythe respondent of all the jurisdictional facts set forth in the afore-aid dra it of complaint , a statement that the signing of said agree.

ment is for settlement purposes only and does not constitute an ad.mission by the respondent that the law has been violated as allegedin such complaint, and wai,"ers and provisions as required by the

Commission s rules; and

AMERICAN PLASTICS, ET' 743

740 Decision and Order

The Commission, having reason to believe that the respondenthas violated the Federal Trade Commission Act, and having- deter-mined that complaint should issue stating its charges in that respecthereby issues its complaint, accepts said ag-reement, makes the fol-lowing- jurisdictional findings and enters the following order:

1. Respondent John I-I. 1Vortman is an individual trading and do-ing business under the name American Plastics , Kar-Chance Divisionof American Plastics , or Kar-Chance, with principal place of busi-ness located at 80 East .Tackson Boulevard , Chicago , Illinois.

2. The Federal Trade Commission has jurisdiction of the subjectmatter of this proceeding and of the respondent, and the proceed-

ing is in the public interest.ORDER

It is ordered That respondent John H. 1Vortman , an individualtrading and doing business as American Plastics, !(al'-Chance Divi-sion of American Plastics, or Kar-Chance, or trading and doingbusiness under any other name or names, and respondent's repre-sent.atives , agents and employees , directly or through any corporateor other device, in connection with the business of obtaining infor-mation concerning delinquent debtors , or the offering for sale, sale ordistribution of forms , or other material, for use in obtaining infor-mation concerning delinquent debtors, or in the collection of, orattempting to collect, delinquent accounts in commerce, as "com-merce" is defied in the Federal Trade Commission Act, do forthwithcease and desist from:

1. Using, or placing in the hands of others for utie, any formquestiormaire or other material , printed 01' \Yritt, pl1 "hieh doesnot clearly revea.l that the purpose for ,yhich the informationis requested is t.hat of obtaining information COllcl' l'ning allegeddelinquent debt,ors. or in the col1rrtioll of. OJ' ntte1lptillg to col-lect, al1egedl)' deli1lpH.'Jlt aCColmts.

2. Representing, or placing in the hands of others, any meansby which they mny H'prf'Sent , directly or by implication. t1wta new moctplrcl cfIr." or ot,her tIling of ,"due. i lwing heJd.

readied or processed for propel' (leliH'1'Y to per olls from ,, hOJJlinformation is sought. unless 1'' sponcleni" tJ1(11 hns ill llis pos-session such lJ", moclelf'il CUl' 01' onwr tiling of \ ah1(. intf'IHlcdfor such lWl'son and tlwJ1 only ,,11(11 the l1C\Y modelrcl CHr. 01'other thing of ,-aIm' . is clear!:,: and expl'C'ssl:,- disclosed amIdcscri lwcl,

744 FEDERAL 'l' RADE COMI\ISSIO DECISIONS

Complaint 67 F.

3. Using the name :' Chfmce Division of American Plas-tics

" "

ICar-Chance" or any other name of simiJar import toclesignfLte, describe, or refer to respondent's business.

It is fwrtheT onlered That the respondent herein shall , withinsixty (60) days after service upon him of this order, file with thcCommission a report in writing setting forth in detail the mannerand form in which he has complied with this order.

IN THE J\IA TTER OF

TOPPS CHEWING GU , INC.

ORDEn , OPINIOX , ETC. , IN REGARD TO THE ALLEGED VIOLATIOX OF THE

FEDERAL TR '.DE co::nIISSIO ACT

DocT-ef 846J. Carnplaint, Jan. SO , 196i2-Decislon, Apr. 30 , 1965

Order adopting in part and ITjecting' in part tl1e initial derision in this proceed-ing and dismissing, for insuffciency of eYidence, the coilplaint whichcharged the Kation s largest manufadurcr of bubble gum with head-quarters in Brooklyn , XY" ,,,ith using unfair methods of competition ingaining control of the bas('ball picture card indllstry.

CO:::'PLAIXT

The Federal Tra,de Commission , having reason to believe thatthe above-namecl respondent has 'Violated and is now violating the

pTOvisions of Section 5 of the Federal Trade Commission Act (151J' C. Section 45), and it appearing to the Commission that a pro-ceeding by it in respect thereto would be in the public interest herebyissues its complaint , charging as fol1o\vs:

PARAGHAPH 1. Respondent is a corporation organized and existingunder and by virtue of the la"s of the State of

BYf York, withits principal offce and place of business located at 254 86th StreetBrooklyn , :New York

PAR 2. H.esponc1ent is nmy : and l1fts been for many years la,st pastengaged in the manufacture, distribution and sa.le of bubble gum.In addition , re,spondent also sells piclnre cards, including cards con-taining the picture of a uniformed major league baseball player: orother professionH-l athlete: manager or coach , either separately or ineonneetion ",yith the sule of its bubbk gum products.

\TI. 3. The. respondent is nmy , and has been for llan ' years lastpast , engaged in commerce , as '; commErce : i:: define,d in the Federal

Trade Commission Act. Respondent m mufacture:: gnm in its fac-